Which Bank Will You Invest Your Money in?
The pronouncement of the Central Bank for all Banks to increase their capital base to a minimum of N25 billion has continued to generate mixed reactions within the financial services industry and from the public at large. The new policy, which came with conditions with respect to foreign exchange dealings, handling of public funds, management of the country's external reserves, was designed to encourage mergers and acquisitions among Banks in an attempt to strengthen and prepare the sub-sector for international competition.
The position of most of the Bank executives and the general public is not entirely against raising the new capital requirement, but the thinking is that, the process should have been gradual to give the players adequate time to enable them comply with the directives. The Central Bank of Nigeria however, seems to have reached a point of no return on the issue.
In order to gain more support for this initiative and encourage banks to quickly adopt the consolidation option, the apex bank had put in place other incentives, which include the provision of free consultancy services for banks that engage the services of experts on the merger option.
In line with the above, banks on their part have started taking several steps to meet up with the new capital requirement. First Consolidated Bank was the first Bank to embrace the merger option. 5 out of the 9 Banks in the alliance have signed a Memorandum of Understanding. Other Banks have continued to implement other initiatives that would enable them meet the new capitalization requirement. These initiatives include sourcing for offshore capital, selling of rights issue and private placement, raising of equity through the capital market and consolidation of existing outfits.
For instance, Zenith Bank and Guaranty Trust Bank recently concluded their Initial Public Offers and Public Offers respectively. Oceanic Bank is presently offering its shares through Initial Public Offer (IPO) while Access Bank Plc is gearing up for its Public Offer set to commence early October. Plans have been put in place by other Banks to list their shares in the stock exchange. The question on the lips of most investors is where do I invest my resources? Which Bank will offer the highest returns within the shortest time possible? What is the growth and trends of these Banks in the last five years?
This piece attempts to analyze the growth rate and returns of some selected Banks. The objective is to throw light on the financial performance of 10 selected banks including Chartered Bank, Diamond Bank, Prudent Bank, NAL Bank, Oceanic Bank, Magnum Trust Bank, Access Bank, First Atlantic Bank, National Bank and Intercontinental Bank. These Banks are considered to be healthy and should attract investors' attention.
In addition, this analysis was based on the growth recorded by these banks in assets and profitability over a period of 5 years. Returns on Equity, Total assets, Profit before tax, Gross earnings and Shareholders fund of the above-mentioned banks were also analysed.
From observations, some of these banks actually performed very well in regards to profit before tax. For instance, Prudent Bank had a growth in PBT of 4950 per cent within a period of 5 years, while Access Bank recorded about 650 per cent which is siginificant considering that two years before now, it was recording a negative.
On total assets which include cash, government securities, stabilization securities, quoted investments, placements with discount houses, liquid assets, total placements, total loans and leases, other assets, total other long-term asset and total fixed assets and intangibles.
From analysis, Access Bank led as it recorded a total asset growth of 3630 per cent for the 5 years period between 1999 and 2003. This was followed by performance of Prudent Bank 3029 per cent and NAL Bank 1431 per cent. It is envisaged that the rate of growth of these Banks would, to a large extent, influence their future growth rates.
The 10 Banks all have good return on investments (ROE). Oceanic Bank, led the other 9 banks with 49.79 per cent, followed by Chartered Bank with 34.96 per cent. Other Banks that also have good ROE are Diamond Bank, Prudent Bank, Magnum Bank and First Atlantic Bank. This ratio shows how profitable these banks were to the shareholders in the last 5 years. This should give an outlook on what the future holds.
On earnings per share which is defined as profit after tax divided by the number of shares in issue which from analysis indicates that Prudent Bank's EPS grew 4509 per cent within the 5 years, from 1999 to 2003, followed by National Bank with 1400 per cent during the same period. In terms of shareholders' funds, Oceanic Bank had the highest of N7.07 billion as at 2003 followed by Diamond Bank N4.9 billion, Chartered Bank N4.2 billion. Others banks that are in the range of N2 billion to N3 billion Naira.
However, apart from the above analyzed financial performance there are non-financial performance measurements criteria that investors need to pay attention to in deciding which Bank to invest in. These non-financial performance measurements include the branch network, management capability, initiatives of the bank, prospects etc. In the subsequent series of this write-up, attempt will be made to analyze these indices.
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