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Saturday, March 25, 2023

Polaris Bank Has Strongest Return on Equity in Nigeria

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If Polaris Bank Limited were a listed company, it would be competing with top performing lenders in the country,  a rare feat for an entity that was created in 2018.

This is because the management team of Polaris Bank is efficient at generating income and growth from its equity financing than any other bank in Nigeria. In other words, it is diligently handling the money that shareholders have contributed to it.

Notably, Polaris Bank recorded a return on average equity of 29.40 percent as at December 2020, even amid the coronavirus pandemic headwinds and a punitive regulatory environment.

That compares with Guaranty Trust Bank’s ROAE of 26.83 percent; Zenith Bank, (22.39 percent); Stanbic IBTC Holdings, (24.40 percent); United Bank for Africa (17.21 percent); Access Bank, (15.62 percent); First Bank Holdings, (10.68 percent); Fidelity Bank; (10.51 percent), and First City Monument Bank, (9.17 percent).

Interestingly, the impressive results which show Polaris 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.

F0r instance, net income increased by 4 percent to N28.53 billion in December 2020 from N27.35 billion as at December 2019.

Net operating income followed the same growth trajectory as it was up 3.73 percent to N90.15 billion in the period under review from N87.64 billion the previous year.

The growth at the bottom line was largely 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.

As a result of additional value creation through internally generated profit, Polaris Bank’s shareholders’ funds grew 17 percent N99.93 billion in December 2020 from N82.98 billion the previous year.

The lender was able to grow customer deposits

Polaris Bank was able to grow Customer Deposits in 2020 by N56 billion to N914.32 billion in December 2020 from N857.88 billion the previous year; the growth in deposit was predominantly through low-cost deposits, impressive for a recently re-positioned Tier 2 bank in a very tough economy and challenging industry environment.

Also, the lender is aggressive about lending to the economy as loans to advances to customers during the year increased by N38 billion to N204.78 billion, which reflects modest but prudent risk appetite to grow its risk assets for optimal interest income generation.

“Polaris Bank has achieved significant milestones since its inception on September 21, 2018 when we started this journey. We have since grown to earn the confidence of the banking public, offering quality banking services at the cutting edge of technology, ” said  Innocent Ike, managing director/chief executive officer (MD/CEO) of Polaris Bank Limited.

 “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,’’ said Ike.

Indeed, Nigerian banks will never forget last year in a hurry as the coronavirus pandemic that undermined the global oil demand environment took a toll on the industry, a reminder of the dark period of 2016 when the sharp drop in crude oil price tipped the county into its first recession in 25 years.

An economic downturn brought on by the lockdown policy imposed by the government to curb the spread of the virus hindered customers from paying interest on money borrowed, and that ballooned loan loss expenses in the books.

A stringent rule by the central bank is not helping matters at all, a slew of monetary policies is dealing a great deal on lenders’ revenue, as interest income and net interest margin have been under significant pressures.

Interestingly, banks have been forced to lower interest rates earlier in a bid to meet the Loans to Deposit Requirement (LDR) requirement.

In the third quarter of 2019,  the CBN, in bid to improve lending to specific priority segments of the economy released a circular directing banks to maintain a minimum loan-to-deposit ratio (LDR) of 60 percent  (later reviewed to 65 percent).

However, analysts have warned increasing the LDR may cause non-performing loans (NPLs) to surge, as lots of loans will be written off as bad and irrecoverable if companies are unable to meet their obligation due to deteriorating cash flows.

As part of the CBN’s expansionary measures to support the economy in the COVID-19 era, MPR was reduced by 100bps to 12.5 percent.

However, boosting the cash reserve ratio limits banks’ ability to put that capital to work in higher yielding assets, such as providing loans to companies or individuals, or buying government bonds.

In September 2020, the apex bank took N926.40 billion from lenders’ additional reserves for missing CRR and loan deposit threshold.

The harshest stringent measures by the regulator was its decision to prohibit individuals and domestic firms from its Open Market Operations (OMO) market, a decision that sent net treasury bills crashing.

The policy is detrimental to banks as it squeezed their revenue; lenders packed their money in both short- and long-term bonds when yields were high.

Despite the myriad of challenges, 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.

“Polaris Bank is now strong and stable, with a sound strategic focus and technology, revitalised brand, people, products and services and technology; and has been placed on a sound foundation for the future,” said Ike.

Ike, who assumed office in the course of the year after the voluntary departure of erstwhile CEO (now) Senator Tokunbo Abiru, added that:“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.”

Historical Background of Polaris Bank  

Polaris Bank was established by the Central Bank of Nigeria (CBN) on September 21, 2018 to offer commercial banking services to the Nigerian public.  The bank commenced services on the same day, having purchased the assets, and assumed certain of the liabilities, of the defunct Skye Bank.

With a footprint of over 350 branches in every corner of the country, Polaris Bank prides itself in delivering exceptional customer experience, leveraging best in class/state of the art Information Communication Technology (ICT).

By focusing on ICT solutions across multiple service delivery channels (mobile banking, ATMs, POS and online platforms) Polaris Bank maintains a pivotal role in the Nigerian banking industry, providing customers with simple, convenient and secured banking services.

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