By Omoh Gabriel,Business Editor
Habib Nigeria Bank limited in the financial year 2003 further improved its performance and market share as all its financial ratios improved above that of 2002. The year 2003 operating results saw the bank’s financial indicators moved up the financial ladder as a result of better performance and increased yields form every aspect of the bank‚Äôs operations. The bank grew its asset base by as much as 12.2 per cent to N20.158 billion. The bank‚Äôs asset expansion resulted mainly from the bank‚Äôs prudent selection of money market instruments in cash and short term funds which expanded by 40 per cent over the previous year‚Äôs figure. Consequently, the bank was able to grow its income above the 2002 level. The growth in the bank‚Äôs cash and short term funds is in line with trends in the industry where banks invest more in liquid assets.
Habib Bank’s Loans and Advances also inched up during the year thus giving the bank more earnings by way of interest income. However, non performing loans increased in volume as well as in proportion so also was the needed provisioning which impacted negatively on gross income and profit margin. Investments in long term instrument experienced decline during the period under review from N1.19 billion in 2002 to N870.6 million in 2003 which is 27.2 per cent decrease. The increase in the bank’s asset base empowered it to grow its business in 2003. The bank’s operations were boosted by the increase in net interest income which rose marginally by 1.6 per cent. Non interest income however experienced a leap rising by 54.3 per cent. With an almost all round improvement in revenue lines, the bank grew its net income to N5.892 billion in 2003. The bank’s operation were further enhanced by a drop in its operating expenses from 87 per cent in 2002 to 85 per cent in 2003. The bank also saw interest expenses coming down lower than the previous year’s thus boosting revenue and profit.
In the 2003 financial year, Habib Nigeria Bank’s interest expenses, declined well below interest income resulting in a lower average cost per naira of deposit of 4.9 kobo, one of the industry’s lowest cost records. As a result, net interest margin increased by 2 per cent point in the 2003 financial year.
Encroachment on earnings came from loan loss provisions, which rose to N2.266 billion in 2003. The rise was, however, 47.5 per cent and thus constrained income and reduced profit margin.
Non-interest income, increased from N1.379 billion record in 2002 to N2.13 billion in 2003, a 54.3 per cent increase, thus enhancing gross revenue and profit figures. The bank maintained its top class credit quality standard in the year though its credit volume rose marginally from the 2002 level. Capital adequacy ratios improved considerably and remained good as well as liquidity which was well above the regulatory benchmark.
Interest margin
Interest cost during the financial year ended December 31, 2003, increased in volume just as interest income increased in volume but declined in proportion below interest cost elements. That gave a decrease in the average interest earned per naira of deposit liabilities outstanding from 37 kobo in 2002 to 28.6 kobo in 2003. Interest paid equally fell from 4.9 kobo in 2002 to 4.3 kobo in 2003. The spread in margin between interest earned and that paid by the bank gave the bank enough to post a modest profit as net interest margin rose from 76 per cent in 2002 to 78 per cent in 2003.
Profit margin inched up
The bank’s profit before tax rose from N993.326 million in 2002 to N1.255 billion in 2003. This is a 26.3 per cent increase in profitability. This has launched the bank into the billion naira profit club as it has become the norm in the industry.
The bank’s operating expenses to total revenue declined from 87 per cent in 2002 to 85 per cent in 2003. The decrease in overhead cost released funds to net revenue and boosted profit. It is remarkable that Habib Nigeria Bank has managed its cost element reasonably as the trend in the industry is toward high cost. However, loan loss provisioning increased at higher figure than the previous year’s. Provision for bad and doubtful loans increased in line with the general increase in loans and advances. Provision for the year stood at N1.077 billion as against the N669.175 million made in 2002. The increase took toll on revenue and profit.
The increase in revenue line and profit level resulted in improvement in the rates of return in the year. Return on average assets increased from 2.8 per cent in 2002 to 3.15 per cent in 2003. The figure is however below industry standard which stands at 4per cent. Return on equity also increased from 31.16 per cent in 2002 to 33.6 per cent in 2003. This ratio is equally lower than industry average of 50 per cent. The increase in return on equity was as a result of the growth in pre-profit which responded faster than the growth in shareholders fund.
Revenue base
The bank’s revenue base during the year increased along line the increases in revenue lines. Gross earnings, as a result, rose, thus pushing up the bank to an earning bracket of N6.954 billion in 2003 from N6.128 billion in 2002. Interest income from loans and advances inched up from N4.748 billion in 2002 to N4.824 billion in 2003. The increase was 1.6 per cent. With that, the bank maintained its growing position unlike the trend of most banks in the industry where operators fight hard to sustain previous years growth rates in interest income. Interest rate in treasury operations also maintained a moderate growth as the bank applied brakes in loans and advances.
Habib Nigeria Bank Limited gross earnings, therefore, rose by 13.47 per cent in the year.
Liquidity
The bank’s liquidity remained above regulatory minimum of 40 per cent at the end of the year. The bank’s liquidity, which stood at 45 per cent in 2002, rose to 58.7 per cent at the end of 2003. The bank, during the year, complied with the CBN minimum liquidity ratio of 40 per cent. During the 2003 financial year demand deposit accounted for 58.6 per cent of Habib bank’s total deposit liabilities. Time deposit accounted for 30.8 per cent, while Savings was 10.5 per cent of total deposit. The low interest cost structure of the bank during the year is explained in the bank’s deposit portfolio which is skewed toward non cost bearing deposit. Equity/Total deposit ratio rose from 13.88 per cent in 2002 to 15.2 per cent in 2003. This showed that the bank’s equity base has been growing at lower rate than its deposit liabilities. In fact 85 per cent of the bank’s operation are financed with depositors money. Similarly, the bank’s equity/total assets recorded a further increase from 8.9 per cent in 2002 to 9.4 per cent in 2003.
The bank’s equity base, which stood at N3.187 billion in 2002 and grew by 17.2 per cent to N3.735 billion. Share capital increased to N1.571 billion in 2003 from the N1.162 billion record in 2002. Statutory Reserves increased tremendously from N1.35 billion in 2002 to N1.662 billion in 2003. This puts the bank on a solid footing to face the challenges in the industry.
High credit quality sustained
Habib Bank Nigeria Limited sustained its high credit quality standard. With marginal growth in classified assets, the percentage of classified loans inched up in 2003 by 37.8 per cent. The bank’s loan quality is top class compared to the poor showing in non-performing loans in the industry. Reserve against loan losses increased from 73.6 in 2002 to 78.8 per cent in 2003 which compares favourably with those of its peers and is within the industry average. During the year the bank wrote off N34371 million and recovered N2.915 million of doubtful loans. The amount written off helped to reduce non performing loans in the bank’s credit stock.
Management
The bank has twelve members on its board of directors. Eight of the board members including the chairman, L.K. Abiola are non-executive, while the managing director, Mr. Abdulfatai A. Kekere-Ekun and three others are executive members of the board. The managing director is supported by a twelve man management team made up of tested bankers. The management of the bank is fairly stable, qualified and experienced.
The bank unlike most others in the industry during the year did not contravene any of the banking regulations and was therefore, not subjected to the payment of any fine. This is a credit to the management of the bank.
Outlook
Habib Nigeria Bank limited has a growing market share as shown by its asset expansion which is an indication of growth in all indices. The bank has emerged as a strong and viable financial institution imbued with the right people and adequate capacity to support its drive for improved sustainable superior performance. In line with its expansion policies, the bank opened three additional branches in 2003 to bring the total network of branches to 59. The bank also plans to open eleven new branches in 2004.
This, when realised will further increase the bank’s market share. With N5.878 billion cash with CBN, the bank’s capital base has risen. It is, however, faced with the challenges of branch network development and deployment of staff and information technology as its focus in the incoming financial year. These are capital intensive indices that require prudence in application. Its level of profitability is good and credit quality is equally good. The cost to revenue ratio at 85 per cent is high and the bank must embark on further cost cutting to free resources and improve its profitability.