WITHOUT doubt, Afribank stands out today as one of the biggest institutions in the Nigerian Banking Industry. In terms of staff strength and geographical spread, it continues to occupy the fourth position and this has helped a great deal in maintaining operational stability in the face of numerous challenges faced by the industry over the years. With a total asset base of N70.58 billion as at 31st March, 2004, about 150 branches located in virtually every part of the country, some 3,300 well-trained and skilled personnel, there is no doubt that the bank has acquired tremendous character in its approach to banking business over the past 34 years of its operation.
With this character, came resilience, which enabled it to emerge stronger after every major corporate challenge. For example, notwithstanding a largely protracted BIAO share ownership controversy (resolved recently), the bank remained solid, focused and profitable just as it continued to play leading roles in the financial market. It is not surprising therefore, that it was selected as a major settlement bank in the clearing system currently in place. It is also not surprising that consequent upon the recent regulatory reforms that seek to encourage consolidation in the industry, Afribank is one of the banks the market looks up to provide leadership. Only recently, it concluded arrangements to make a mega shares issue in the capital market in order to meet up with the minimum equity capital base of N25 billion required by the Central Bank.
Among the premium products and services offered by the bank to customers include Afribank CashExpress, Pilgrims Welfare Account, Oil Services Contractors Revolving Facility (OSCAR), Afribank Personal Retirement Plan (APRP), International Money Transfer via Travelex Services, Automated Teller Machine (ATM) Services, and On-line, Real-time services. Interestingly, more than 80 per cent of Afribank’s branches are connected in a wide Area Network making it one of the top five banks with the widest technological coverage for on-line services in the industry.
Of about N500 million it set aside for the scheme as at end of the last financial year, it had committed more than N250 million to about 12 companies, showing more than 40 per cent actual commitment rate against about 20 per cent averge for the industry. As part of what industry watchers see as institutionalised commitment to excellence, the bank some years ago, commenced a societal friendly programme of encouraging and rewarding excellence in the Nigerian Educational System through the annual sponsorship of three top candidates in Joint Matriculation Examination. This is in addition to valuable academic chairs it had instituted in as many as 13 universities. Not surprisingly, more than 75% of the bank’s corporate social responsibility every goes to intellectual and youth development. This clearly shows an institution that takes a long-term of its relationship with the environment.
But this passionate commitment to human capacity building is not limited to external relations, management of Afribank is equally passionate in its manpower development agenda within the bank. The bank had since established more than six training centres which were recently restructured in line with the new focus in intellectual and skills development. This has helped to substantially improve motivation level and productivity of staff in the last few years.
Infact, the 2004 financial year was significant in the transformation of the bank. In that year, the bank resolved to re-tool its strategy, sharpen staff focus and restructure operations. It also cleansed its books and commenced a new life under the famed project rejuvenated programme code-named “Project ERA”.
Remarkably, this project gave new life to the bank as it returned to substantial profitability. By the recently released 2004 financial reports, four years sequel to that exercise, the bank continued to show strong performance results that confirms it’s place as one of the leading institutions in the industry. Analysts’ opinion as reflected in the recently released ratings by P.A. Data & Management Services confirms that despite obvious challenges, the figures remain favourably comparable to those of leading banks in Nigeria and preceding year’s performance.
EARNINGS AND PROFIT PERFORMANCE
Since the major transformation project embarked upon by Afribank Management in 1999/2000 financial year, efficiency of generating earnings from available resources and controlling operating costs have improved remarkably, reaching a peak performance in 2002 when virtually all the relevant indicators ranked among the best 10 in the industry. Infact, at N15.15 billion, Gross earning was the fourth highest figure reported in the industry, just as net profit lept to all-time high of N1.68 billion.
Although the bank witnessed reversal in performance trend in 2003 as a result of deliberate realignment of portfolio and strategy, earnings quality improved just as prospects for future growth became brighter. This was manifested in 2004 when it recorded increased net profit from N791 million to N968 million against the background of marginal decline in gross earning. This performance is significant when viewed against declining profit performance by the entire industry. Profit before tax for the industry declined from N93.2 billion in 2002 to N82.3 billion in 2003 with about 50 per cent of the figure attributable to only 10 banks.
Afribank was able to improve its bottomline essentially by a combination of effective relationship management and cost containment strategies. There was a remarkable moderation in both the direct and indirect cost of funds, just as loan recovery efforts resulted in tremendous success. Accordingly, the efficiency in cost management defied the marginal decline in earning to push net profit up to N968 billion which translates to 24.4 per cent return on average core equity up from 22.8 per cent in 2003.
As a result of this impressive result, the Directors proposed a dividend of N442 million to shareholders against N331 million paid in 2003. The bank projects that dividends will continue to increase in this manner to the satisfaction of investors and the capital market. To P.A. Data Analysts, this 2004 earning and profit performance sustained the modest rating (B-) achieved in 2003.
SAFETY AND ADEQUACY OF CAPITAL BASE
For a greater part of the past decade, Afribank adopted a slow but steady approach to business growth, a deliberate strategy to operate within the bounds of prudence in the face of constraints imposed by the prolonged controversy surrounding BPE Intervention on the BIAD shares. The bank therefore depended exclusively on internally generated funds in the accumulation of capital. Fortunately, for the bank, the return to substantial profitability over the past four years and a complementary dividend policy helped to accumulate core share capital fund to N4.22 billion as at end of 2004 financial year which translated to 12 per cent of estimated riskness of asset portfolio. This is better than nine per cent estimated for 2003 and above the regulatory threshold of 10 per cent imposed by Central Bank From this perspective therefore, the bank’s capital base provided adequate cushion for the huge volume of business and risk represented by its portfolio.
This level of capitalisation attracted average safety rating (B) in the P.A. Data Rating Grid thereby retaining the rating achieved since 2002. However, following the successful resolution of the BIAD controversy and the recent CBN directive on minimum capital requirement, the bank got the necessary approvals to make a mega public offer in the capital market. By the close of the exercise, apart from satisfying regulatory requirement, the bank hopes to re-establish itself on the part of rapid growth. It also plans to make some strategic acquisitions as may be directed by unfolding opportunities in the environment.
LIQUIDITY AND QUALITY OF RISK ASSETS
One of the challenges faced by Afribank while designing the “Project ERA” is how to continuously construct portfolios that boosts earnings and profits and simultaneously minimise various risks associated with loan repayments, market rates, possible pressure from customers and economic conditions. Not surprisingly, the key aspect of year 2000 reforms included reworking of credit policy, re-invigorating of treasury and recovery units.
Prior to 2002, the bank maintained a portfolio strategy oriented towards low risk elements and thus maintained high liquidity. However, the challenge of boosting earnings resulted in alteration of strategy such that by 2002, default risk component of the overall portfolio, which hitherto remained at levels below 50 per cent, climbed for the first time in the last decade to 51 per cent.
It came down to 46 per cent in 2003 and increased to 51 per cent in 2004. Significantly, while management accommodated increased risk proportion in the portfolio, liquidity was not compromised. Liquidity ratio adjusted for volatility remained at levels above 60 per cent and this ensured that customers consistently received desired attention. Interestingly too, the non-performing loans ratio continued to trend downwards since 2000 up to 2003 when it was 26.7 per cent. Although this remained high, the trend reflected success of risk management measures. However, 2004 saw the ratio move up again to 31 per cent, a level that was higher then industry average of 22 per cent of 2003. An analytical view of risk quality inherent in asset and liability portfolios for 2004 resulted in average rating (B) in the P.A. Data Rating Scheme, same as in 2003.
SUMMARY
There is no doubt that Afribank remained solid, well structured and focused. This had given it the character to continue to post impressive results even in the face of challenges. This, it demonstrated once again in 2004. As it approaches the capital market to re-capitalise, the bank carries with it the promise to continuously create value for customers and shareholders.
![[Image]](http://news.biafranigeriaworld.com/..\..\..\images\vlogo.gif){kind=small}
