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Companies

Polaris Bank: Back from the dead

The bank reported a profit after tax of N28.5 billion for the year well ahead of tier 2 banks like Sterling Bank, FCMB and Union Bank Plc

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Tokunbo-Abiru Group Managing Director, Polaris Bank Limited

For anyone who has faced a near death experience being given a second chance to live is an opportunity to redress old ways and start a new life.

In 2018, Polaris Bank experienced a rebirth after its precursor Skye Bank was nationalized. Skye Bank’s acquisition of Mainstreet Bank and its related party excesses had ultimately led to the downfall of the once thriving bank.

Since then, the bank has undergone a restructuring under the leadership of its CEO Adetokunbo Abiru who took over the bank in 2016 following a CBN action that dissolved the bank’s then board and management.

The bank’s first set of financial statements since its nationalisation was released this week providing an opportunity to see how the bank is taking on its new lease of life under the stewardship of Dr Abiru

This is the banks first set of results in over 4 years and provided a glimpse into its first 20 months as a nationalized bank. The bank reported a profit after tax of N28.5 billion for the year well ahead of tier 2 banks like Sterling Bank, FCMB and Union Bank Plc. The defunct Skye Bank was one of the larger tier 2 banks in its hey days, but one would have thought that its reincarnation will at least need some time to recover before being back in the fringes. A cursory dig at the results provides an insight.

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READ ALSO: Access Bank merger: This is what will happen to your Diamond Bank Deposit

It turns out Polaris Bank did what anyone who has just come out near death experience would do, play safe. Out of the bank’s total deposit of N857.8 billion, the bank only recorded loans and advances of N188.7 billion.

No surprises that its loan to deposit ratio was just 22% significantly lower than the CBN approved 65%. In fact, out of its total assets of N1.1 trillion, N518 billon was invested into investment securities like treasury bills and bonds. The rest were either held as cash with banks, CBN and AMCON or invested in assets. Skye Bank had to play safe in its road to recovery.

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The result is a 5 folds increase in profits year on year and a return on equity of 33% besting industry best (no pun intended) GTB’s 31.1% as at end of 2019. Out of the bank’s N131.6 billion in interest income N79.1 billion of it came from investment in CBN securities such as treasury bills and the now restricted Open Market Operations (OMO). Same period last year (2018) the bank earned just N15.1 billion from investment securities.

READ MORE: Report identifies banks expected to raise equity after COVID-19 flattens

The bank’s cost to income ratio, a metric for how cost-efficient banks are, also moderated to 68%, again far lower than most of the Tier 2 banks on our radar. The bank also has a high liquidity ratio of 81% compared to the CBN’s 27.5% target.Capital Adequacy ratio of 14% suggest the bank’s capital is just about right for its balance sheet size.

Despite the impressive results Polaris bank still lives with a remnant of its old sickness. The non-performing loans of 46% is one of the highest in the industry despite coming down from the high of 80%. Bringing this ratio down to the single digit level espoused by the CBN for other banks will be an onerous task still.
It may have to write off more loans while it continues to battle multiple lawsuits in its quest to seize assets of chronic debtors. With the outlook for the economy looking gloomy flipping assets and chasing after creditors will only get harder.

Polaris Bank is still a bridge bank so its challenges will take time to be surmounted. The bank’s future probably lies in a marriage or adoption with or by a rival bank. AMCON has been shopping the bank since 2019 and has made little success. The recent charter that First Bank could be setting up to acquire the bank should boost morale especially with this decent result.

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READ ALSO: Updated: CBN debits banks N1.4 trillion for failing to meet CRR targets.

Polaris bank

Now, the bank is in a good financial position to face scrutiny with some cover. Strong earning numbers and indicative ratios bode well for the target company in a corporate deal.

Before then the bank will have to wait out the Covid-19 pandemic and the effects of the crash in oil prices whole also proving in the next coming months that this result was not a fluke. It cannot afford to relapse.

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Nairametrics is Nigeria's top business news and financial analysis website. We focus on providing resources that help small businesses and retail investors make better investing decisions. Nairametrics is updated daily by a team of professionals. Post updated as "Nairametrics" are published by our Editorial Board.

1 Comment

1 Comment

  1. Ezekiel Olujide, Amosun

    April 28, 2020 at 11:37 am

    Thank you for timely updates on happenings in banking industry.

    Can we get data regarding profitability, total deposits, assets of banks that are not public? The likes of Keystone Bank and the likes.

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Companies

Flour Mills moves to diversify funding sources with N29.8 billion bond listing

Flour Mills Nigeria Plc lists N29.8 billion bonds to diversify funding sources from the Nigerian capital market.

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Flour Mills makes one of the largest contributions to COVID-19 relief fund

Flour Mills Nigeria Plc’s fresh N29.8 bond listing will help the nation’s leading food business company to explore diversified funding sources from the Nigerian capital market, with the hope of enhancing growth and the development of the company.

This statement was made by the Group Managing Director of FMN, Mr. Omoboyede Olusanya, at the listing of the Tranche A and Tranche B bonds valued at N29.8 billion on the Nigerian Stock Exchange (NSE).

The food and the agro-allied company which has remained Nigeria’s largest and oldest integrated agro-allied business with a broad profile and robust Pan-Africa distribution issued these bonds under its N70 billion Bond Issuance Programme.

Olusanya said that the company would continue to explore funding opportunities inherent in the capital market to ensure business growth and continuity.

While speaking about the Credit Rating of the Programme, he disclosed that FMN’s credit rating, as well as the operational financing of the Group, have improved considerably.

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According to him, the bonds floated by Flour Mill will help to strengthen the company’s capital base and provide the needed working capital required by the Company. He added that Flour Mills Group will continue to deleverage and replace short term financing with longer-tenured and lower price funding to optimize capital structure and reduce financing cost.

He noted that Flour Mills will continue to explore opportunities to raise fundings via the capital market as this enables the company to diversify its funding sources and continue to play a role in the capital market as a significant player in it.

What they are saying

The Group Managing Director of FMN, Mr. Omoboyede Olusanya, at the virtual event, said;

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  • “We are delighted with the response from the market, we are happy to be listed.
  • “We are introducing an N29.9 billion listing under an N70 billion bond issuance cover; we will continue to raise funding to diversify our funding sources.
  • “The company remains passionate about feeding the nation to improve the quality of living for Nigerians through increased production and investments in backward integration.”

What you should know

  • With the successful issuance of the new N29.8bn Tranche A and Bonds, FMN has utilized its bond issuance program registered in 2018.
  • It is important to note that the Senior Unsecured bond listing includes an N4.89bn under Series 4 Tranche A of the bond issuance programme, at a 5.5% rate for 5 years, due by 2025, and a 25bn under Series 4 Tranche B of the same program at a 6.25% rate for a tenure of 7 years, due by 2027.
  • The bond proceeds will be used to refinance existing debt obligations. It will also help the company take collaborative actions to diversify the company’s financing options beyond expensive short term debt.

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Business

Lafarge moves to divest 35% shareholding in CBI Ghana

Lafarge Africa Plc has resolved to sell off its 35% shareholding in Continental Blue Investment Ghana Limited.

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Lafarge Africa provides grant for startups, Lafarge Africa’s latest earnings report reveals 8.5% decline in gross profit , Lafarge Africa gets new CFO one month after resignation of former finance director, Lafarge Plc reveals why it invited Italian man with Coronavirus to Nigeria, Lafarage Africa group Plc posts a revenue of N213 billion in 2019, profit up N17 billion, Lafarge moves to sell 35% shareholding in Continental Blue Investment Ghana Limited

The Board of Lafarge Africa Plc has resolved to sell off its 35% shareholding in Continental Blue Investment Ghana Limited, in order to cut down on costs impacting the Group’s profit.

This disclosure was made in a notification tagged- “Notice of Divestment in Continental Blue Investment Ghana Limited”, which was issued by the Company Secretary, Mrs. Adewunmi Alode.

According to the statement, the Board of Directors of the Group made the decision to divest its 35% shareholding in Continental Blue Investment Ghana Limited (“CBI Ghana”), in line with the resolutions made at the emergency board meeting which held yesterday 20th, January 2020.

This move was made to set off the cement manufacturer on the path of sustainable growth and profitability, as Lafarge’s investment in CBI Ghana has depleted significantly over the years.

What you should know

  • This is not the first time the company has had to sell off an unproductive investment in an effort to cut down on deadweight cost, as key players in the Cement industry like BUA and Dangote Cement continue to show strength and resilience through their effective cost minimization strategy which worked well in 2020.
  • Recall that in August 2019, Lafarge Africa sold off all its stakes in Lafarge South Africa Holdings (LSAH). This move helped the company to cut down costs coming from its South African subsidiary, which had been making billions of naira worth of losses for years.

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Companies

Multiverse forecasts N39.5 million profit in Q1 2021

The management of Multiverse Plc has projected a revenue of N76 million and a profit of N39.5 million in Q1 2021.

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Multiverse Mining and Exploration Plc has projected that in the first quarter of 2021, the mining and exploration company will generate N76 million in revenue, and post a profit of N39.5 million.

These projections were made by the company in a recent earnings forecast issued by the Management, and signed by the Corporate Secretaries of the company.

Key highlights of the earnings forecast for Q1 2021

  • Total revenue is projected at N76 million.
  • Turnover from agency sale is projected at N1 million.
  • Agency cost is s projected at N850 thousand.
  • Total expenses are projected at N7.8 million.
  • Operating Profit is projected at N67.3 million.
  • EBIT (Earnings Before Interest and Taxation) is projected at N67.3 million.
  • Interest Expense is projected at N27.8 million.
  • Profit after tax is projected at N39.5 million.

Key assumptions made to support the earnings forecast and projection of the company

The earnings forecast was made on the ground that there won’t be any significant change in the economic policies of the Federal Government, while the monetary policies of the CBN would not be altered significantly.

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The company also maintained that there would not be any industrial unrest that would affect its production and sales volume, while the profit of the company would not be pressured by rising costs of inputs, as prices of materials used in production shall be stable in the period under review.

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