THERE could perhaps have been no more appropriate time in the history of Intercontinental Bank Plc than now to launch the Happy Savers Promotion.
2006 represents a high point in its 17 years of operation in the Nigerian banking industry. In virtually all aspects, the directors, shareholders and customers have every reason to be happy.
Due to what in retrospect has been classified as strategic foresights, Intercontinental Bank had prior to the consolidation exercise in the banking industry, spread its investment in some other banks to form a family of subsidiary and associates.
Hence, when Central Bank of Nigeria came up with the directive in July 2004, industry watchers were almost certain that the Bank would have a head-start over its competitors.
It was therefore, not surprising when the Bank announced Equity Bank, Gateway Bank and Global Bank as the consolidation partners. This was the setting that set the stage for one of the most stress-free and seamless business combinations that happened during the period. Negotiating the scheme document was rancour-free just as with miscellaneous documentation and legal issues. Most importantly, actual integration of people, technology and process happened at a very fast pace as a result of several commonalities that existed earlier.
With conclusion of this exercise in 2005, the Bank ranked in the top four in virtually all measures of size in the industry. In fact, at a time, it became the best capitalised bank with about N54 billion shareholders’ fund. By 2006, total asset base rose to N361 billion against the pre-merger consolidated figure of N164 billion in 2005.
One set of stakeholders that obviously had cause to be happy with the exercise are the small and medium-scale entrepreneurs. Before 2005, the Bank’s commitment and actual disbursement to this important sector could as well be considered low for the reported figure of N0.86 billion. This, however, rose 169 per cent by 2006 to N2.31 billion. The latest figure also made it the fourth best supporter of this sector in absolute terms.
In perhaps a more passionate way, Intercontinental Bank strives to make the wider society even happier through a more strategic approach to its corporate social responsibility. The Bank reportedly spent about N210 million on such projects but what is even more interesting is dominant focus on educational causes. In fact, going through a list of projects undertaken one is left with the impression that given the opportunity, the Bank would want every Nigerian to enjoy stress-free education.
It has committed itself to building projects in every public university in Nigeria and has already covered five universities. It has awarded 50 scholarships in each of six state of the federation and intends to gradually cover the 36 states.
In order to ensure that customers are happy, Intercontinental Bank evolved into a laboratory of some sort for the roll out of innovative products. In fact, today, it holds the record as having the largest array of innovative products and services in the industry. Again, a good number of these products are education-linked. Perhaps the inspiration to go bullish on new product development followed the unparalled success of its money market products in the last five years some of which included the popular Intercontinental Diamond Fund (IDF), Intercontinental Premium Savings Account (IPSA) and Intercontinental Value Yield (IVY) Account. These have been followed by such value-adding ones like Intercontinental Class Account I-class).
As a concrete expression of its customer-centric focus and crowning the customer for the success achieved in 2006, it recently launched the Happy Savers Promotion. To mark its 18 years of successful operations, 18 Honda cars, 180 motor cycles are up for grabs and will be given out during the 18th year anniversary due for February 2007. It is open to both new and existing customers that can save up to N50,000.
Although the Bank had always maintained a solid IT infrastructure to drive its products, processes and services delivery, the integration of technologies of the legacy, Intercontinental Bank provided another opportunity to up-scale Information Technology assets to the most up-to-date standards.
During the post-merger year 2006, it invested about N2.3 billion in equipment of which IT accounted for substantial part. This includes the latest version of the software – Flexcube known to be a robust banking application solution.
The Bank is one of the four banks that have implemented the Mantas Anti-Money Laundering Software with capability to run several types of integrity tests on pre and post transaction basis.
Another area Intercontinental Bank stands out in the industry is the level and approach to diversification which is always strategic. Its major interests range from insurance, mortgage, property management, securities business, Issuing House and financial advisory services and Discount House operations. With subsidiaries and associates operating in these markets, the Bank is also reputed to be one of the most diversified in the industry with uniform service standards within the Group. Recently, the Bank got approval to set up an international subsidiary in one of the West African nations where it intends to propagate the same “Happy Customer, Happy Bank” concept of banking services delivery. Plans are underway to extend international operations to Europe, Dubai and Americas in the next few years as part of the Bank’s drive to be the number one bank in Nigeria by 2008.
With remuneration package that has consistently placed within the industry top three for the past decade and a well structured training programme, the Bank’s employees are some of the happiest in the industry and this has resulted in consistently improving measures of productivity per capita. Ultimately, productivity shows up in the bottom-line for the benefit of shareholders.
The measure of happiness of shareholders of Intercontinental can perhaps be better gauged from the dividend history over the years and remarkable price appreciation the stock has achieved in the capital market. Interestingly, the firm’s share price has appreciated by more than 200 per cent since it issued shares in the market as part of its recapitalisation drive during the 2005/2006 consolidation exercise.
Although Board Members of the Bank faced some storm at a point, they emerged stronger and united to become one of the happiest board members in the industry. This could be attested to by the kind of stability in its composition. All members of the pioneer board more than 17 years ago remain members of the Bank.
Indeed, all stakeholders have reasons to be happy with the Bank. This is not only expressed in words. Operational statistics has been so impressive and most balanced.
EARNINGS AND PROFITABILITY
During the 2006 financial year, the Bank grossed a total of N22.9 billion, up from N11.9 billion for the 14 months ended February 2005. That of the Group increased from N21.0 billion to N38.8 billion. Interest income accounted for 64 per cent of Bank earning, declining marginally from 65 per cent in 2005. Interestingly, this has been on the decline trend since 2002 when it contributed 72 per cent of earnings. This implies that fees and other non-interest sources of income is increasingly contributing to the top line.
But gross interest margin is in the upward movement. It was 68per cent in 2006, marginally up from 67 per cent after growing from 49 per cent in 2003.
This has been the result of effective management of both direct and indirect cost of funds. In fact, provision for risk assets declined in 2006 as quality of these assets improved. This is against the background of increase in volume.
Although income increased in absolute terms, when compared with resources utilised, the result was that earnings efficiency declined marginally from 26 per cent in 2005 to 22 per cent.
On the area of cost, our Analysts’ measure of efficiency also revealed a decline in 2006. It was 22 per cent against 26 per cent rating in 2005. Nonetheless, this is higher than performance levels at any other period in the last six years in spite of the huge costs of consolidation incurred.
In absolute terms, the bottom-line result was a Profit After Tax of N8.6 billion, up from 14 month figure of N5.02 billion in 2005.
Impressive as this was, earnings per share declined from 93 kobo to 80 kobo per share just as return on average equity declined from 24 per cent to 20 per cent. Actual cash dividend per share was 40 kobo while it was later to reward shareholders with a special dividend and scrip issue.
The Bank’s recently released third quarter result has led Analysts to predict that the Bank may achieve a net profit of about N13.0 billion in 2007 thereby out-performing its projections.
CAPITALISATION
Because of its established strategic growth path, Intercontinental Bank had long recognised share capital as a critical factor to drive its expansion and diversification. This is because moving into new markets can be very risky and capital based provides the necessary cushion and confidence to break into them. This is no wonder, therefore, that in the period immediately after consolidation, it emerged as the most capitalised bank in Nigeria. Following a highly successful public offer which brought in about N21 billion in new funds and the merger with three other banks, the Bank reported shareholders’ fund of N54.0 billion as at February 2006, up from N33.00 billion in 2005. This was not only the highest figure in the industry as at that period but also higher than the minimum required ratio of 10 per cent.
This showed that the Bank still had great latitude for further business expansion without prejudice to the fact that it was lower than 41 per cent estimated for 2005. The sharp decline was accounted for by an equally sharp growth in business volume in 2006.
Despite this high level of capital adequacy, the Bank recently made a hybrid issue of about N50 billion in the capital market. Close watchers of the market believe that the offer was heavily over-subscribed and may have brought in close to N96.0 billion. If confirmed, the Bank may as well be the first to attain the new threshold of $1.0 billion capital base required to manage part of the nation’s foreign exchange reserves.
OPERATIONS AND QUALITY
In creating risk assets, Intercontinental remained particularly cautious, prudent and professional. Although asset base continued to grow consistently, adjusted risk asset proportion only grew at a lower pace, leading to the maintenance of a portfolio that tended more towards risk aversion. After attaining the highest level of 48 per cent for the past five years in 2005, it declined again to 45 per cent in 2006. For most banks, it ranged from 49 per cent to 55 per cent.
Perhaps with this cautious approach to risk management, the Bank was able to maintain a portfolio of high quality. Non-performing loans ratio stayed at six per cent in 2004 and 2005 and improved marginally to 5.6 per cent in 2006. Adjusted liquidity ratio reduced from 75 per cent in 2005 to 48 per cent, showing reduced ability to meet obligations to customers.