With Eyes on Low-interest Bearing Deposits, Polaris Bank Sustains Profit Growth in 2020

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Money

Festus Akanbi’s review of Polaris Bank’s second year performance scorecard shows its improved profitability was driven by the combination of the significant reduction in interest expense due to the bank’s pursuit of low interest-bearing deposits as well as lowering impairment charges on loans and other financial assets

It is a fact that Nigerians and other members of the international community are still settling down to the ‘new normal’, a term used to describe the drastic change in the hitherto conventional ways of doing things.

In Nigeria, both public and private business endeavours are compelled to tune their operations to reflect the realities, which the COVID-19 pandemic and the attendant worsening economic situation have unleashed on the Nigerian people.

As at today, banking operations have undergone a significant change. The reality is that the effects of the recent lockdown and the shrinkage of the economy have brought a significant change in the expectations of bank users, a development which is forcing operators to review their systems. This is because apart from the fallouts of the renewed efforts of the Central Bank of Nigeria to protect depositors’ rights and ensure adherence to professional rules among banking operators, the harsh economic realities on the resources of potential depositors and customers have compelled banks to re-strategise in order to stay relevant.

Therefore, as banks continue to reel out their performance figures for year 2020, it is becoming very glaring that what matter most is the ability of operators to rely on their strategic advantage in the industry and to insulate their institutions from avoidable miscalculations.

In the emerging scenario, economic activities slowed down considerably as a result of closure of many businesses while others ran skeletal services. What this means is that banks have to struggle for the few surviving businesses and in this dispensation, it’s only banks that is able to make the difference that could break even.

In the case of Polaris Bank Limited, challenges came in different direction in its recent history. Apart from the reality of COVID-19 and its attendant challenges to banking, the board and management of Polaris Bank were also saddled with the responsibility of navigating from a transition from Skye Bank to its new brand. It was also in the course of 2019-2020 operation that its former chief executive officer, Mr. Tokunbo Abiru, threw in the towel in order to pursue his political ambition.

Return to Path of Profitability

However, in its 2020 performance results made available last week, the bank has proved to its shareholders and depositors that it has put most of the challenges that overwhelmed the legacy Skye Bank behind it and that the new entity has negotiated its course back to the path of profitability.

Last week, Polaris Bank released its full-year audited financial results for the year ended December 2020. The bank posted a Profit Before Tax (PBT) of N28.9 billion. The results, which show the bank’s second year performance scorecard after two years of operation, have further consolidated its position as focused on the path of profitability, growth, and value creation.

According to the RTC Advisory Services Limited, Polaris Bank’s year 2020 performance reflects a four per cent Year-on-Year (YoY) increase in Profit Before Tax (PBT). The performance, according to the financial analysts, is driven by the combination of the significant reduction in interest expense due to the bank’s pursuit of low interest-bearing deposits as well as lowering impairment charges on loans and other financial assets.

Also, within the period under review, the bank recorded Return on Asset (ROA) and Return on Equity (ROE) of 2.4 per cent and 29.4 per cent respectively. The bank’s total assets stood at N1.18trillion, a three per cent growth on the previous year, while shareholders’ funds grew by N14billion (17 per cent), largely attributable to internally generated profits.

The bank increased its customers’ deposits by N56 billion, predominantly low-cost deposits in spite of difficult economic and industry conditions, and increased its gross loan book by N38 billion, reflecting the bank’s modest and prudent risk strategy to grow its portfolio of quality loans for optimal interest income generation.

Return to Stability

Analysts believe the bank’s return to stability could be attributed to its new corporate strategy, good corporate governance and management depth and cohesion. And according to the report of RTC Advisory, the board and management of Polaris Bank have demonstrated strong commitment towards business ethics by upholding sound risk management practices and proactively taking measures to ensure the bank is on the path of value creation and sustainability.

“Polaris Bank’s performance in FY’20 reflects commendable improvements in key performance indicators, assuring a strong positive outlook for earnings, margins, and profitability improvement in its cautious pursuit of loan growth, a sustained strategy for operational efficiency, funding cost optimization, and efficient deposit mix.

“The headroom for loan creation no doubt presents an opportunity for improved margins. Going into the year 2021 and despite the challenging macroeconomic environment, the bank may be poised to reap the benefits of its investment in both digitization and the capacity of its employees to improve service experience,” the report stated.

Abiru, the erstwhile CEO, departed in the course of 2020 to pursue a successful run for the Nigerian Senate after a distinguished banking career and success in rescuing the old Skye Bank and an impressive first year result in the then new Polaris Bank Ltd.

Analysts are of the view that the fact that the bank sustained its growth trajectory in spite of Abiru’s exit is indicative of a seamless transition and management depth and cohesiveness in Polaris Bank.

The bank’s Managing Director/Chief Executive Officer, Mr. Innocent Ike, who assumed office in the course of the year after the exit of Abiru said: “Polaris Bank has achieved significant milestones since its inception in September 21, 2018 when we started this journey.

We have since grown to earn the confidence of the banking publics, offering quality banking services at the cutting edge of technology.”

He added that, “2020 was arguably the most challenging year that the world has faced in decades owing to the negative impact of COVID-19 on businesses and the economy. Yet, the current result demonstrates the importance of the deployment of appropriate strategies, technology and effectively validates our recent investment in technology solutions and digitization of our products and processes,” he added.

Reaping the Dividend of New Corporate Strategy

He explained that the bank’s subsisting three -year corporate transformation strategy has recently been reviewed in line with the changing operating environment and trend dynamism for sustainable value creation.

He equally noted the acceleration of the digital transformation journey which is one of the potent strategies to strengthen balance sheet, control cost and process / Self – Service Offering.

In the views of some financial analysts, Polaris Bank’s remarkable achievements in 2020 are a testament of her consolidation of its 2019 performance, relevance of the bank’s new corporate strategy, management depth and good corporate governance.

“The board and management of Polaris Bank have demonstrated strong commitment towards professionalism and business ethics by upholding sound risk management practices and proactively taking measures to ensure the bank is on the path of value creation and sustainability.

“Polaris Bank’s performance in FY’20 reflects commendable improvements in key performance indicators, assuring a strong positive outlook for earnings, margins and profitability, a cautious pursuit of loan growth, a sustained strategy for operational efficiency, funding cost optimization, and efficient deposit mix. The headroom for loan creation no doubt presents an opportunity for improved margins,” a statement by the bank’s head of corporate communication, Rasheed Bolarinwa, said.

Bolarinwa explained that going into the year 2021 and despite the challenging macroeconomic environment, the bank is poised to reap the benefits of its investment in both digitisation and the capacity of its employees to improve service experience.

Analysts believe Polaris Bank has some strong strategic attributes-strong liquidity, good relationship management, a vast branch network. Its management is said to be enhancing its brand and product offering to differentiate the bank and deepen its franchise.

Challenges

One cannot but notice some key outstanding challenges which the management has promised to tackle head on in its current operating year.

This are non-performing loans (NPL) ratio, which has increased slightly from 2019 (46% IFRS) to 49.9% IFRS in 2020 due to the official exchange rate adjustment within the period that increased legacy foreign currency denominated NPLS.

The bank is said to have made significant investments in platforms, technology and workforce. This will ultimately lead to the stabilisation of the brand.

And in the opinion of analysts from RTC Advisory Services, Polaris Bank has largely overcome its legacy challenges and constraints and is now very well positioned as a digitally-enabled and strategically focused retail bank to compete in the Nigerian financial services industry. The intervention of the regulatory authorities in the legacy institution has been vindicated by a strong and committed management.