Polaris Bank: How Much Value Has Been Added Since 2018?

Polaris Bank: How Much Value Has Been Added Since 2018?

Polaris Bank Limited’s earnings profile swings positive after an improved financial position achieved in the two years under the management’s three years transformation agenda.

In its financial year 2020 result, the bank’s return on equity closed at 29.4%, which some analysts consider as a pretty comfortable level, though this was below 33% on record in 2019.

Though a decline was recorded in return on equity, undoubtedly, the management’s effectiveness at using shareholders’ funds to generate earnings was strong – not so many banks did better in 2020.

What is baffling about the bank is its low branch network given how it metamorphosed from defunct Skye bank which had spread across the nation after its acquired Mainstreet Bank.

However, Polaris Bank has been aggressive in recent times due to intense competition especially as many customers’ preferences for electronics banking services increase.

Polaris Bank: How Much Value Has Been Added Since 2018?
Polaris Bank: How Much Value Has Been Added Since 2018?

Looking back from 2020, it could be noted that despite multiple pressures that faced the banking sector, Polaris Bank has been able to stay afloat – based on its recent financial scorecard.

The Central Bank has raised the regulatory bar, with some margin dilutive circulars targeted at operators. In particular, the CBN’s dovish stance on interest rate has resulted in declining interest income across the banking sector.

Evening of the 3-Year Transformation Program

In two years, the Polaris bank has delivered positive earnings, according to financial statements posted on its website – though the identity of the auditor is not revealed.

Based on the figures posted, it is safe to say the management core assignment to transform the bank for profitability and growth appears to be on track.

Extract from the bank financial record showed that the lender’s equity position has increased 17% from N82.989 billion in the financial year 2019 to N96.899 billion.

On the asset side, the bank booked an impressive loan growth while its deposits liabilities expanded, development analysts attributed to the Central Bank 65% loan to deposit target.

Also, the breakdown of its capital structure or financing mix showed there is a huge reorganisation reserve that may take decade of profit outturns to offset but then retained earnings expanded to N10.040 billion, rising more than twice from N4.395 billion in the comparable period in 2019.

In addition, that the bank’s other reserve category swelled up by 29.25% to N36.426 billion from N28.161 billion in the last year’s result.

At 15.9% record level, the Polaris bank capital to risk assets ratio still stays ahead of the Central Bank benchmark just like its 45% liquidity ratio eclipsed the 30% set required by the apex bank.

With the numbers, Polaris Bank has shown resilience with two years straight positive earnings momentum under the three years transformation plan focusing on growth, profitability, and value creation.

Would the bank survive further?

In its recent earnings scorecard, profit margin appeared strong in line with the industry’s peers on average while the bank stands positive in CBN prudential guidelines.

Its financials showed equity capital jumped 17% from N82.990 billion in 2019 to N96.899 billion despite pandemic-induced economic stress on operation as 2019 profit was ploughed back into the business.

What Will Happen to The Bridge Builder?

In September 2018, the CBN made a big announcement over the grave financial condition of erstwhile Skye Bank Plc bedridden by insider loans to key directors among other infractions.

As a result, erstwhile Skye Bank Plc.’s balance sheet strength weakened beyond the apex bank allowable tolerance level, following long-time forbearance that was granted.

These, couple with empire building tendency of dissolved Skye Bank Board of Directors that approved acquisition of Mainstreet bank despite various red signals rocked the bank.

As the bubble busted, Polaris bank was birthed as policymakers understood the shock would be too much for a growth-starved Nigerian economy to have absorbed.

To safe the bank and protects depositors credit, the Central Bank injected N786 billion into a bridge bank, Polaris Limited, which then took over asset and liabilities of the broken balance sheet lender – Skye Bank.

Nigerian Deposit Insurance Commission also made a similar financial injection. It is not clear whether there are potential investors or a willing buyer to make the big call on Polaris Bank.

Financials

While return on equity printed at 29.4% in 2020, the bank capital adequacy ratio jumped to 15.9% ahead of prudential guideline from 13.8% in the comparable period.

The management hinted that the bank now operates with lower funding cost, falling to 2.5% from 4.7% though inflation pressure in the country raised its cost as proportion of income to 62% from 59%.

In its financial statement, the Polaris bank posted a 4% increase in pretax profit from N27.829 billion in 2019 to N28.9 billion amidst sluggish economic recovery.

In statement, the management said the results show the Bank’s second year performance scorecard after two years of operation. The bank thinks this has further consolidated the bank position as focused on the path of profitability, growth, and value creation.

It was noted the improved outturn 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.

Following a 9% increase in net loans and advances to customers, the bank’s total assets expanded to N1.18 trillion from N1.143 trillion in 2019.

The bank’s customer deposits expanded by 7% or N56 billion from N857.890 billion to N914.323 billion, with low-cost deposits accounting for large chunk in spite of difficult economic and industry conditions.

Commenting on the Bank’s performance, Polaris Bank Chief Executive, Mr. Innocent C. Ike who took over in the course of the year from Tokunbo Abiru explained that “the 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 stressed further 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, and effectively validates our recent investment in technology solutions and digitization of our products and processes,” he added.

Polaris Bank Chief explained that lender’s subsisting three-year Corporate Transformation Plan has recently been reviewed in line with the changing operating environment and trend dynamism for sustainable value creation.

“Digital transformation remains one of the potent strategies to strengthen the Bank’s balance sheet, control costs, and improve processes while providing clients with wider self-service offerings”.

Analysts think 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.

Polaris Bank has 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.

Management said the bank performance in 2020 reflects commendable improvements in key 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.

Going into the year 2021 and despite the challenging macroeconomic environment, the Bank is poised to reap the benefits of its investment in both digitization and the capacity of its employees to improve service experience.

Polaris Bank is a future-determining bank committed to delivering industry-defining products, services, and digital platforms across all the sectors of the Nigerian economy.

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Polaris Bank: How Much Value Has Been Added Since 2018?

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