Nigeria Banking Sector Coverage - December 2011 'Bad ... - Imara

Nigeria Banking Sector Coverage - December 2011 

'Bad bank' leads to good entry points…… 

Analyst: 

Brian K Mugabe 

+27 11 550 6005 

brian.mugabe@imara.co

Table of Contents 

Nigerian Banking Sector Overview ................................................................. 1 

Access Bank ............................................................................................. 5 

Ecobank Transnational Inc ........................................................................... 9 

First City Monument Bank .......................................................................... 13 

First Bank Nigeria .................................................................................... 17 

Guaranty Trust Bank ................................................................................. 21 

StanbicIBTC Bank ..................................................................................... 25 

United Bank for Africa ............................................................................... 29 

Zenith Bank ............................................................................................ 33

Nigeria Banking Sector Overview 

Having undergone a major recapitalisation in 2005, where 

new minimum capital requirements of NGN 25bn led to the 

number of banks in Nigeria reduced to 25 from 89 through 

regulatory mergers and acquisition and later to 24 through 

market-induced merger and acquisition, Nigeria’s banking 

sector was supposed to be sound and well poised for the 

growth that its under banked retail market would provide 

with bank branches growing from 2,900 in 2005 to almost 

5,500 in mid-2009. Indeed, all seemed well, until the GFC 

hit in 2008, and the sector’s shiny coat began to unravel. 

As noted by the current CBN Governor in a public lecture in 

December 2010, the GFC affected Nigeria through both the 

financial and real (trade, remittances and aid) channels. 

The undiversified nature of the Nigerian economy and the 

high dependence on exports of crude oil as well as foreign 

capital inflows compounded the impact of the external 

shock arising from the crisis, as Nigeria experienced low 

demand for its oil export due to recession in the economies 

of her major trading partners. This, coupled with the 

collapse in the international price of oil, led to severe 

decline in foreign exchange receipts and consequently, 

government revenue contraction. There was a substantial 

decline in foreign capital inflows just as foreign trade 

finance reduced significantly for some banks while for 

others credit lines literally dried-up. 

The greatest impact was, however, felt in the capital 

markets. The excess liquidity that had hitherto found its 

way into the stock market in the heydays of 2006/2007, 

which had also allowed banks to raise capital, had led to 

many of Nigeria’s bank’s being overcapitalised. The increase 

in capital supported banks’ balance sheet growth with 

banking sector assets as percentage of GDP increasing 

rapidly to 60% from about 30% in 2004. Struggling to 

profitably deploy all of this capital (most banks actually 

took in more capital than they had sought to raise as the 

NSE allowed this at the time in the event of 

oversubscriptions), banks were under pressure to create risk 

asset amidst limited product innovation and diversification. 

This, the CBN notes, coupled with poor risk management, 

led to a concentration of assets in certain areas, in 

particular margin lending and oil trading/marketing. As at 

end-December 2008, banks’ total exposure to the oil 

industry stood at over NGN 754bn, representing over 10% of 

the industry total and over 27% of shareholders’ funds. 

Thus, as foreign investors began to pull their funds out of 

the market, looking to reduce their exposure to “riskier” 

emerging and frontier markets, further exacerbating 

investor negativity due to the waning economy, panic selling 

by domestic investors followed. The capital market 

downturn had a negative impact on bank balance sheet 

through increased provisioning for bad debts and lower 

profitability. The result was a sharp deterioration in the 

quality of bank assets which then led to concerns over 

banking sector liquidity. 

Concerned about the state of some of the Nigerian 

banks and the overall stability of the financial 

system, the Central Bank of Nigeria (CBN), 

commissioned special examinations on all 24 banks 

in Nigeria. These examinations highlighted 

significant deficiencies in capital adequacy and 

liquidity requirements, and illustrated major 

weaknesses in corporate governance and risk 

management practices. Ten banks were adjudged 

to be in grave states with deficiencies in capital 

adequacy i.e.: Oceanic Bank, Union Bank of 

Nigeria, Intercontinental Bank, Bank PHB, Afribank 

Nigeria, Finbank, Equitorial Trust Bank, Spring 

Bank and Wema Bank Plc. The tenth bank, Unity 

Bank, was not deemed to be in grave danger, but 

still adjudged to have insufficient capital and 

unacceptable levels of non-performing loans 

(NPLs). Of these, eight also had significant 

deficiencies in liquidity, risk management 

practices and corporate governance policies. 

Dec 2010 

Negative NAV (NGN bn) 

Oceanic Bank International 

Nigeria Plc (94 261) 

Union Bank of Nigeria Plc (135 894) 

Intercontinental Bank Plc (330 709) 

Bank PHB Plc (242 309) 

Afribank Nigeria Plc (260 940) 

Finbank Plc (104 751) 

Equitorial Trust Bank Ltd (27 253) 

Spring Bank Plc (87 869) 

Source: CBN 

The CBN took proactive steps, including the 

injection of NGN 620bn as a convertible loan that 

amounts to Tier II capital into the banks, replacing 

the Chief Executives and Executive Directors of 

eight of the banks with competent managers with 

experience and integrity, introducing the 

guarantee of the local interbank market to ensure 

continued liquidity for all banks and guaranteeing 

foreign creditors and correspondent banks’ credit 

lines to ensure confidence and maintain important 

correspondent banking relationships. The CBN also 

moved to create a “bad bank”, the Asset 

Management Corporation of Nigeria (AMCON). By 

31 December 2010, AMCON had executed loan 

purchase and service agreements with 21 

participating banks to acquire NPLs with a face 

value of NGN 2.04tn for just under NGN 800bn. 

92.5% of the purchased NPLs were from the 10 

“intervened” banks with the balance of 7.25% 

coming from other banks. AMCON issued 3-year 

zero coupon bonds with a yield of 10.125% as 

consideration for the purchased NPLs. This helped 

to further stabilise the banking sector. 

1

Along with the advent of AMCON, the CBN also required 

that the rescued banks be recapitalised by 30 

September 2011. Wema Bank and Unity Bank were 

successfully recapitalised, we saw five banks, namely 

Union Bank Plc, Oceanic Bank Plc, Finbank Plc, 

Intercontinental Bank Plc and Equatorial Trust Bank 

enter into different M&A deals. Union Bank shareholders 

approved a USD 750m injection by a group of private 

equity investors led by African Capital Alliance who will 

own 60% of its equity; Intercontinental Bank Plc will 

merge with Access Bank; Oceanic Bank will be 

recapitalised by Ecobank Transnational Inc (ETI) and 

merged with its Nigerian subsidiary Ecobank Plc; 

FinBank will merge with FCMB and Equitorial Trust Bank 

will merge with Sterling Bank. In August 2011, the CBN 

had revoked the licenses of three banks for failing to 

show ability to recapitalise ahead of the deadline, for 

all intents and purposes nationalising Bank PHB, 

Afribank and Spring Bank. The assets of these banks 

were transferred to three newly created, nationalised 

banks: Keystone Bank, Enterprise Bank and Mainstreet 

Bank. 

Aggregate banking system’s claims (net) on the Federal 

Government also rose by 19.0% to negative NGN 

908.75bn, reflecting, largely, the increase in the 

banking system’s holding of treasury securities, 

particularly FGN Bonds. The Federal Government, 

however, remained a net lender to the banking system 

at the end of the review month. 

Relative to the level at 31 December 2010, banking 

system’s credit to the private sector rose by 10.9%, 

owing largely to the increase in credit to the core 

private sector. Foreign assets (net) of the banking 

system, however, increased by 7.2%, reflecting, 

largely, the 9.0% rise in the CBN’s holding. Quasimoney, 

also rose by 11.5%. Other assets (net) of the 

banking system, however, increased by 22.0%. 

Selected DMBs Interest Rates (Average) 

Financial Sector Developments – 2011 

The latest available monthly review from the CBN for 

August 2011, reflects that relative to the level at end- 

December 2010, M2 grew by 8.5%, owing, largely, to 

14.7% increase in domestic credit in the banking system. 

M1 grew by 5.4% over the level at end-December 2010, 

owing wholly to the 7.2% increase in its demand deposit 

component. 

Growth Rate of M1 and M2 

Source: CBN Aug 11 Economic Report 

Total assets and liabilities of the DMBs amounted to 

NGN 19,482.9bn at end August, showing an increase of 

4.3% above the level at end-July 2011. Funds sourced 

mainly from increased capitalisation, draw-down on 

reserves and increased in unclassified liabilities were 

used, largely, to extend credit to private sector and 

purchase of Federal Government securities. At NGN 

12,140.4bn, DMBs’ credit to the domestic economy 

rose by 12.5% above the level in the preceding month. 

M-o-M Growth in Monetary and Credit Aggregates 

(%) 


Foreign exchange inflows and outflows through the CBN 

in August were USD 4.32bn and USD 4.23bn, 

respectively, and resulted in a net inflow of USD 0.09bn. 

Foreign exchange sales by the CBN to the authorised 

dealers amounted to USD 3.68bn, showing an increase of 

11.6% and 53.2% over the level in the preceding month 

and the corresponding period of 2010, respectively. 

Over the level at end-December 2010, aggregate 

banking system credit (net) to the domestic economy, 

rose by 14.7%, due largely to the 19.0% and 10.9% 

increase in claims on Federal Government (net) and 

claims on the private sector, respectively, to NGN 

9,990.75bn. 


2

The breakdown, on a month-on-month basis, showed 

that credit to states and local governments and credits 

to the core private sector rose by 11.5% and 9.8%, 

respectively, above their levels in July 2011. Central 

Bank’s credit to the DMBs, largely, loans and advances, 

fell marginally by 0.04% to NGN 384.61bn at end-August, 

while specified liquid assets of the DMBs stood at NGN 

3116.62bn, representing 21.5% of their total current 

liabilities. This level of liquid assets was 12.9 

percentage points above the preceding month’s ratio, 

but 8.5 percentage points below the stipulated 

minimum ratio of 30.0% for fiscal 2011. The loan-todeposit 

ratio was 43.6% and was 36.4 percentage points 

below the stipulated maximum target of 80.0%. 

The quality of risk assets in the banking sector improved 

significantly in H1 11. The industry NPL ratio declined to 

10.4%, from 20.1% and 37.1% at end-December 2010 and 

the corresponding period of 2010, respectively. The 

ratio was well below the acceptable contingency 

threshold of 20.0% for the industry. Also, the ratio of 

non-performing loans (net of provisions) to capital 

declined to 34.7% from 64.2% at end-December 2010. 

The development was attributed to the acquisition of 

NGN 2.73tn in eligible bank assets (EBAs) by AMCON and 

the improved risk management practices by banks. The 

corporation’s acquisition of NPLs significantly improved 

banks assets quality from the all-time high record of 

34.4% at end-November 2010 prior to the 

commencement of AMCON to 10.4% at end-June 2011, 

compared with its current threshold of 25.0%. 

Source: CBN H1 11 Economic Report 

According to the CBN’s H1 11 Economic Report, the 

average CAR of the sixteen non-intervened banks was 

21.5% at end-June 2011, while the CAR of the eight 

intervened banks was -53.5%. Overall, the average CAR 

of the industry stood at 5.0% at end-June 2011, 

representing a decline of 2.0 percentage points from its 

levels at end-December 2010 and a shortfall of 3.0 

percentage points relative to the Basel II minimum 

requirement of 8.0%. Banks’ industry- wide average 

liquidity ratio, at 50.3%, was above the 30.0 and 47.5% 

minimum requirement and the level at end-December 

2010, respectively. One bank, however, failed to meet 

the stipulated ratio, compared with the 100.0% 

compliance achieved at December 2010. 



With the advent of AMCON, and the recapitalisation and 

consolidation of the sector largely completed, Nigeria’s 

banks are looking attractive once more. Valuations 

remain low, a result of foreign capital leaving the 

exchange in a bid to reduce exposure to riskier assets 

which always affects the liquid banking stocks more 

than the rest, while other investors adopt a wait and 

see attitude as they hope to get better earnings 

visibility once the AMCON sales and mergers and 

acquisitions have been completed. We think now is a 

good time for investors to once again look for entry 

points. Growth prospects remain compelling, with the 

majority of the population having limited access to 

financial services, as the sector remains largely geared 

towards the corporate and higher income segments. 

The Economist Intelligence Unit, EIU, estimates 

Nigeria’s financial access level at just 15%, compared 

with, for example, 46% in South Africa. It forecasts that 

Nigeria’s banking sector will nearly double its assets in 

the next decade, which we believe will translate to 

strong growth in earnings for the sector. 

3

NGN (m ) 

NGN (m ) 

NGN (m ) 

NGN (m) 

NGN (m) 

NGN (m) 

The EIU does temper the outlook, however, noting that the sector’s growth will not be as strong as it could be, due 

to the fact that the economy will not grow at a pace that will see a more rapid increase in the number of bankable 

households, in the medium term. In the shorter term, the recent tightening in monetary policy by the CBN will 

likely lead to an improved net interest performance for the more liquid banks as they take up higher yielding 

government assets, but of course the other side will be a slowdown in loans and advances and potentially rising 

provisioning levels as borrowing costs rise for clients. 

All the Nigerian banks under coverage in this report yield buy recommendations, with the exception of StanbicIBTC, 

on which we issue as sell recommendation given its unjustifiable, in our view, relative and intrinsic valuations, 

while we issue a hold recommendation on UBA pending further clarification on the capital raise. Our favourites are 

GTB, Zenith and First Bank, while we think Access Bank could yield the most benefits from the M&A activity. 

1 400 000 

1 200 000 

Loans & Advances Pre M&A (9M 11) 

1 400 000 

1 200 000 

Loans & Advances Post M&A (9M 11) 

1 000 000 

1 000 000 

800 000 

800 000 

600 000 

600 000 

400 000 

200 000 

- 

FBN 

Zenith Bank 

UBA 

GTB 

Access Bank 

Skye Bank 

Diamond Bank 

FCMB 

Oceanic Bank (H1 11) 

Union Bank 

StanbicIBTC 

Ecobank Nigeria 

Fidelity Bank 

Sterling Bank 

Unity Bank (Q1 11) 

Mainstreet (Q1 11) 

Intercontinental Bank 

Keystone (Q1 11) 

Wema Bank 

FinBank 

Enterprise (Q1 11) 

400 000 

200 000 

- 

FBN 

Zenith Bank 

UBA 

GTB 

Access/Intercon. (Proforma) 

Ecobank/Oceanic (est.) 

Skye Bank 

Diamond Bank 

FCMB/FinBank (Proforma) 

Union Bank 

StanbicIBTC 

Fidelity Bank 

Sterling Bank 




Wema Bank 


Deposits Post M&A (9M 11) 

Deposits Pre M&A (9M 11) 

2 500 000 

2 500 000 

2 000 000 

1 500 000 

2 000 000 

1 500 000 

1 000 000 

1 000 000 

500 000 

500 000 

- 

FBN 

Zenith Bank 

UBA 

GTB 

Union Bank 

Access Bank 



Skye Bank 

Diamond Bank 

Fidelity Bank 

FCMB 





StanbicIBTC 

Sterling Bank 

FinBank 

Wema Bank 


- 

FBN 

Zenith Bank 

UBA 


GTB 


Union Bank 

Skye Bank 


Diamond Bank 

Fidelity Bank 




StanbicIBTC 

Sterling Bank 

Wema Bank 


3 500 000 

3 000 000 

2 500 000 

Total Assets Pre M&A (9M 11) 

3 500 000 

3 000 000 

2 500 000 

Total Assets Post M&A (9M 11) 

2 000 000 

1 500 000 

1 000 000 

500 000 

2 000 000 

1 500 000 

1 000 000 

- 

FBN 

Zenith Bank 

UBA 

GTB 

Union Bank (Q1 11) 

Access Bank 


Skye Bank 

Diamond Bank 

Fidelity Bank 

FCMB 



StanbicIBTC 



Sterling Bank 


Wema Bank 

FinBank 


500 000 

- 

FBN 


Zenith Bank 

UBA 


GTB 

Union Bank (Q1 11) 


Skye Bank 

Diamond Bank 

Fidelity Bank 

StanbicIBTC 



Sterling Bank 


Wema Bank 


700 

600 

500 

400 

Branch Network (Pre M&A) 

700 

600 

500 

400 

Branch Network (Post M&A) 

300 

300 

200 

200 

100 

100 

0 

FBN 

UBA 

Union Bank 

Oceanic Bank 


Zenith Bank 

Skye Bank 

Unity Bank 


Diamond Bank 

Mainstreet 

Keystone 

GTB 

FinBank 

Fidelity Bank 

StanbicIBTC 

Wema Bank 

FCMB 

Enterprise 

Access Bank 

Sterling Bank 

ETB 

0 

FBN 

Ecobank/Oceanic 

UBA 

Access/Intercon. 

Union Bank 

FCMB/FinBank 

Zenith Bank 

Skye Bank 

Unity Bank 

Diamond Bank 

Mainstreet 

Keystone 

Sterling/ETB 

GTB 

Fidelity Bank 

StanbicIBTC 

Wema Bank 

Enterprise 

4

EQUITY RESEARCH 

NIGERIA 

DECEMBER 2011 

BANKING 

Incorporated in 1989 and subsequently listed in 1998, 

Access Bank Plc (Access) is a full scale commercial bank 

in Nigeria. It has also expanded its footprint beyond 

Nigeria’s borders, with subsidiaries in eight other 

African countries, namely Ghana, Sierra Leone, The 

Gambia, Cote d’Ivoire, Zambia, Burundi, Rwanda and 

the DRC, as well as having a presence in the United 

Kingdom. As at FY 2010, the group had over two million 

customers served from 148 branches by 2,255 

employees across all its jurisdictions. Nigeria remains 

the anchor though, with 110 branches and 1,317 

employees out of the total. 

• An attributable loss in the nine months to Dec 09 of 

NGN 4.2bn as the CBN’s strict provisioning came to 

the fore was turned around in FY 10, where the group 

recorded an attributable profit of NGN 11.2bn. 

• The increase in earnings was, however, driven more 

by a reduction in the impairment charge, as operating 

income actually fell by 4.75% to NGN 65.0bn, as both 

net funded income fell y-o-y while non-funded income 

reflected a marginal increase. 

• In its 9M 11 results to September, a strong recovery in 

net interest income as well as an improved CIR led to 

earnings increasing by 34.89% to NGN 12.9bn. 

• In a move to make the step up from ‘2nd’ to ‘1st’ tier 

bank, Access shareholders approved the merger 

(effective takeover) of the bank with that of one of 

the ‘rescued’ banks, Intercontinental Bank. This will 

make the combined entity a top 3-5 bank in Nigeria, 

depending on the metric, and we expect the benefits 

to Access of the wider branch network and lower cost 

of funds to be significant. 

• Using a DCF valuation, we value Access Bank at NGN 

11.65 per share, without taking into account the 

acquisition of Intercontinental. A coverage based PBV 

average based on the last published post merger proforma 

accounts suggests a valuation of NGN 10.21 per 

share. In our view, Access looks best placed to benefit 

from M&A activity relative to its peers. BUY. 

Recommendation 

BUY 

Bloomberg Code 

ACCESS:NL 

Current Price (NGN) 4.9 

Current Price (USc) 3.0 

Target Price (NGN) 11.6 

Target Price (USc) 7.2 

Upside (%) 140.2 

Liquidity 

Market Cap (NGN m) 86 758 

Shares (m) 17 888 

Free Float (est. %) 80.5 

Ave. daily vol ('000) - 1 yr. 16.9 

Price Performance 

Price, 12 months ago (NGN) 125.0 

Change (%) (96.1) 


Change (%) (96.3) 

Financials (NGN m) 31 Dec F2010 2011F 2012F 

Loans & Advances 455 552 670 879 838 051 

Net Interest Income (excl. Provisions) 44 166 53 647 69 911 

Non-Interest Income 25 355 32 253 43 277 

Attributable Earnings 11 245 17 326 25 607 

EPS (kobo) 64.8 97.3 143.9 

DPS (kobo) 50.0 58.4 86.3 

NAV/Share (kobo) 1 027.1 1 027.7 1 113.2 

Valuation Ratios Current 2011F 2012F 

Earnings Yield* (%) 16.8 20.1 29.7 

Dividend Yield (%) 10.3 12.0 17.8 

PE* (x) 6.0 5.0 3.4 

PBV (x) 0.49 0.47 0.44 

RoaA (%) 1.5 1.8 2.0 

RoaE (%) 6.5 9.6 13.4 

Net Interest Margin (%) 7.3 7.1 7.0 

Cost to Income Ratio (%) 70.0 59.7 59.9 

* - trailing 

Access Bank vs NSE ASI (Rebased) 

1.5 

1.4 

1.3 

1.2 

1.1 

1 

0.9 

0.8 

0.7 

0.6 

0.5 

0.4 

0.3 

17-Nov-10 

17-Dec-10 

17-Jan-11 

17-Feb-11 

17-Mar-11 

17-Apr-11 

17-May-11 

17-Jun-11 

17-Jul-11 

17-Aug-11 

17-Sep-11 

17-Oct-11 

17-Nov-11 

Strengths 

Weaknesses 

IT focused 

Wholesale roots has meant traditionally higher cost of funds 

Solid CAR and liquidity ratios 

Large oil & gas exposure - should now be resolved via AMCON 

Targeting middle market where most peers focus on top end Relatively small branch network 

Opportunities 

Threats 

Intercon acquisition to give increased scale and 

Sector to become more competitive 

lower cost of funds 

Delays/ resistance to acquisition could lead to slower 

Combined branch network enhances customer base implementation and benefits thereof accruing 

Access Bank 

NSE ASI 

5

NGN (m) 

NGN (m) 

FY 10 & 9M 11 Financial & Operational Review 

Having recorded an attributable loss in the nine months 

to Dec 09 of NGN 4.2bn, driven by the stringent CBN 

provisioning requirements following the banking sector 

turmoil, FY 10 saw Access Bank return to profitability. 

Comparing FY 10 with the annualised 9M 09 numbers, net 

interest income for the year was down 8.56% to NGN 

44.2bn, with interest income falling 25.77% to NGN 

65.8bn and interest expense down 46.38% to NGN 21.6bn. 

Interest margins fell during the year as lower interest 

rates led to falling yields on earning assets while demand 

for credit remained sluggish given the slow economic 

environment. 

120 000 

100 000 

80 000 

60 000 

40 000 

20 000 

0 

2005 2007 2008 2009 2010 2011 E 2012 E 

Attributable Earnings Total Operating Income 

Source: Access Bank 

25 000 

20 000 

15 000 

10 000 

5 000 

0 

-5 000 

-10 000 

Net non-interest income growth was positive, if 

marginally so, up 2.72% to NGN 25.4bn. This was driven 

mainly by fee and commission income, with fees related 

to credit, remittances, LCs, and facility management all 

having a strong showing, as did transaction related 

commissions. The shaky revenue performance led to 

operating income falling 4.75% to NGN 65.0bn. Positively, 

operating expenses were curtailed during the year, up 

just 1.97% to NGN 48.8bn, but the cost to income ratio 

still deteriorated notably to 70.23% from 65.61%. Nigeria 

remained the most dominant contributor to operating 

income with 86%, the rest of Africa following with 12% 

while the UK contributed 2%. 

The provision charge came down substantially to NGN 

4.5bn from NGN 22.2bn in the comparative period, as the 

group focused on higher quality advances while benefiting 

from AMCON sales (NGN 13.2bn sold with a P&L impact of 

NGN 486m), write backs and recoveries. 

With no associate line item in FY 10 compared with a loss 

of NGN 7.5bn in FY 09, the group swung from an 

annualised attributable loss of NGN 5.6bn to attributable 

earnings of NGN 11.2bn. The earnings per share 

equivalent for the year came out at 62.9 kobo while 

dividend per share was 50 kobo, down from 70 kobo in 

the prior year. On a net basis, the ex-Nigeria operations 

recorded a loss. 

Total assets were up 16% to NGN 804.8bn, with 

investments in securities which were up 147.30% to NGN 

117.9bn and net loans and advances of NGN 455.6bn, up 

16.46%, being prominent. The oil and gas, manufacturing 

and telecoms sectors were a combined 54% of the loan 

book, oil and gas leading the way with 22%. The NPL ratio 

improved to 8.1% from 19.0% in FY 09 while the coverage 

ratio, following AMCON sales and recoveries, improved to 

94% (FY 09: 37%). Capital market related NPLs at year end 

were 26%, and made up the largest single chunk. 

With deposits growing ahead of the loan book at 22.05% 

to NGN 599.3bn, the LDR fell to 81.9% from 85.7%. While 

the contribution of low cost deposits to the total 

improved to 51% from 39%, there still remained plenty of 

room to further optimise the deposit mix and help reduce 

cost of funds. RoAE and RoAA closed at 6.5% and 1.5% 

respectively, and the CAR was 26% vs. 32% as at Dec 09. 

900 000 

800 000 

700 000 

600 000 

500 000 

400 000 

300 000 

200 000 

100 000 

0 



Deposits 

Loans & Advances 

ACCESS Q3 11 Results Summary (m) 30-Sep-11 30-Sep-10 

Net interest income 41 457 32 724 

Other Income 20 522 20 408 

Operating income 61 978 53 133 

Non-interest expense (36 808) (33 824) 

Allowance for credit impairment (8 744) (5 201) 

Operating profit 16 426 14 066 

Attributable earnings 12 890 9 556 

30-Sep-11 

30-Jun-11 

Loans and advances to customers 548 121 512 419 

Deposits from customers 646 642 639 112 

Total equity 176 467 175 397 


6

In its 9M 11 results to September, Access Bank continued 

to see an increase in earnings momentum, with gross 

earnings increasing by 5.40% y-o-y to NGN 82.2bn. Funded 

income largely drove income growth, increasing by 

26.68% on a net basis as the bank benefited from a rising 

interest rate environment allied with an improved deposit 

mix, factors which saw interest income rise by 7.12% and 

interest expense fall by 18.67%. NIMs improved to 8.3% 

compared with 6.8% at Q3 10 and 7.5% at FY 10. 

Non-interest income growth was far less palatable, 

however, up just 0.56% to NGN 20.5bn, a scenario which 

was attributed to a sluggish market for government 

securities. The position was improved from H1 11, 

however, where that line item actually recorded negative 

growth of 15%. Operating income growth was thus 

somewhat diluted to 16.65%, ending the 9M period at 

NGN 62.0bn. 

Operating expenses continued to be well controlled by 

Access, rising by just 8.82% to NGN 36.8bn, leading to a 

notable improvement in the cost to income ratio from 

63.66% to 59.38%. Adjusting for the AMCON levy, which 

was accrued at NGN 1.8bn, management notes that 

operating cost growth would have been an even more 

impressive c3.5% y-o-y, as the group remains focused on 

cost management and operational efficiencies. 

Provisions registered an increase y-o-y of 68.11% to NGN 

8.7bn, as the impact of the mandatory 1% general 

provision (NGN 5bn) came through the numbers. 

Attributable earnings closed the period at NGN 12.9bn, 

representing an increase of 34.89%, or annualised EPS of 

96 kobo, from 62.9 kobo in FY 10. 

Balance sheet growth was 4.18% from the half year, with 

total assets at NGN 1.0tn. Net loans and advances to 

customers went up 6.97% to NGN 548.1bn, while 

investment securities rose by 25.01% to NGN 130.2bn with 

the group receiving AMCON bonds for NPL sales. Oil and 

gas remained the highest class of loan exposure at 25%, 

while also having the largest NPL contribution at 41%. A 

large oil and gas loan was mainly responsible for the 

skew, (more than likely to Zenon) and management 

stated that this position will have been sold to AMCON by 

the end of Q4. NPL’s were down to 8% q-o-q from 9% at 

H1 11. Customer deposits growth was flat at 1.18% to 

NGN 646.6bn, attributed to a reduction in high cost 

deposits in a bid to improve margins. The CAR ended the 

period at 23%, slightly higher than the 22% at H1 but 

below FY 10’s 26%. 

2.0% 

3.0% 

14.0% 

19.0% 

18.0% 

Loans and Advances Sectoral Split (Q3 11) 

25.0% 

19.0% 

Oil & Gas 

Manufacturing 

General Commerce 

Information & Communication 

Government 

Finance and Insurance 

Other 

Outlook 

Access has been a reasonably well run operation 

historically, but its roots as more of a 

corporate/wholesale bank have perhaps kept it from 

achieving as much as it could have in terms of growth. 

In a bid to give it more scale and enable it to compete 

more favourably against the first tier banks, Access 

successfully submitted a plan to the CBN to take over 

one of the rescued banks, Intercontinental Bank, by 

way of a scheme of merger, which has subsequently 

been approved by both sets of shareholders. Under 

the terms of the merger, AMCON was to recapitalise 

Intercontinental Bank to a zero NAV, via an injection 

of NGN 548bn in financial accommodation. Access 

would then inject NGN 50bn as equity into the bank, 

via an SPV, giving it 75% ownership. AMCON would be 

a 15% shareholder with the original Intercontinental 

shareholders remaining with 10% of the reconstituted 

entity. Until the date of merger, (12 month execution 

plan), Intercontinental will continue to operate as a 

subsidiary of Access. 

We see the case for this transaction for Access, as this 

will effectively leapfrog it into the top 3-5 banks in 

Nigeria, giving it an additional 366 branches and a 

pool of cheap deposits that will reduce its relatively 

high dependence on the wholesale market and bring 

down its cost of funds. As management pointed out on 

an investor call, this acquisition for Access is primarily 

a “funding” strategy. The bigger scale should also 

allow Access to write bigger ticket business, while 

non-interest income will benefit from the increased 

transactional volumes that a wide retail network will 

bring. As with any takeover/merger, risks will remain 

regarding how long it would take for synergies to have 

an impact on the bottom line, and of course to 

integrate the different cultures, people and 

processes. 

The forecasts presented in the scheme IM suggest that 

the merger will be accretive for Access by FY 12, 

where Intercontinental is forecast to record 

attributable earnings of NGN 8.1bn. 

Valuation and Recommendation 

Using a DCF valuation, we value Access Bank at NGN 

11.65 per share, without taking into account the 

acquisition of Intercontinental. A coverage based PBV 


accounts suggests a valuation of NGN 10.21 per 

share. In our view, Access looks best placed to benefit 

from M&A activity relative to its peers. BUY. 

7

Financial Summary 

Income Statement Summary 2005 A 2006 A 2007 A 2008 A 2009 A 2010 A 2011 E 2012 E 

Net Interest Income Before Loss Provision 2 353 6 261 11 942 26 031 36 226 44 166 53 647 69 911 

Y-o-Y Growth 166.1% 90.7% 118.0% 39.2% 21.9% 21.5% 30.3% 

Non Interest Income 3 566 4 628 10 988 17 323 18 513 25 355 32 253 43 277 

Y-o-Y Growth 29.8% 137.4% 57.7% 6.9% 37.0% 27.2% 34.2% 

Total Operating Income (incl Prov) 4 934 9 503 21 154 39 456 38 089 64 997 74 485 102 158 

Y-o-Y Growth 92.6% 122.6% 86.5% (3.5%) 70.6% 14.6% 37.2% 

Operating Expense (4 183) (8 384) (13 111) (20 610) (35 914) (48 644) (51 267) (67 844) 

Y-o-Y Growth 100.4% 56.4% 57.2% 74.3% 35.4% 5.4% 32.3% 

Profit Before Tax 751 1 119 8 043 18 846 (3 482) 16 169 23 218 34 315 

Y-o-Y Growth 49.1% 618.5% 134.3% (118.5%) (564.4%) 43.6% 47.8% 

Attributable Net Income/Profit After Tax 502 737 6 083 15 825 (4 195) 11 245 17 326 25 607 

Y-o-Y Growth 47.0% 725.3% 160.1% (126.5%) (368.1%) 54.1% 47.8% 

Balance Sheet Summary 2005 A 2006 A 2007 A 2008 A 2009 A 2010 A 2011 E 2012 E 

Cash & Short term Funds 11 812 46 264 158 433 585 706 157 770 128 577 127 211 173 081 

Y-o-Y Growth 291.7% 242.5% 269.7% (73.1%) (18.5%) (1.1%) 36.1% 

Financial Assets held for Trading 33 497 53 976 42 193 104 831 44 605 37 661 48 610 58 174 

Y-o-Y Growth 61.1% (21.8%) 148.5% (57.5%) (15.6%) 29.1% 19.7% 

Loans & Advances,Net 16 334 56 042 112 031 253 430 391 160 455 552 670 879 838 051 

Y-o-Y Growth 243.1% 99.9% 126.2% 54.3% 16.5% 47.3% 24.9% 

Deposits 37 032 123 550 222 051 433 664 490 984 599 261 847 247 1 091 014 

Y-o-Y Growth 233.6% 79.7% 95.3% 13.2% 22.1% 41.4% 28.8% 

Borrowings - - 14 652 2 604 81 89 98 

Y-o-Y Growth NA NA NA (82.2%) (96.9%) 10.0% 10.0% 

Shareholder's Equity 14 072 28 894 28 385 171 861 168 346 175 370 183 840 199 128 

Y-o-Y Growth 105.3% (1.8%) 505.5% (2.0%) 4.2% 4.8% 8.3% 

Per Share Data 2005 A 2006 A 2007 A 2008 A 2009 A 2010 A 2011 E 2012 E 

Earning per Share (NGN) 11.5 6.6 87.2 171.0 (27.1) 64.8 97.3 143.9 

Y-o-Y Growth (42.7%) 1217.4% 96.2% (115.8%) (339.2%) 50.2% 47.8% 

Dividend Per Share (NGN) 0.00 0.00 40.00 65.00 70.00 50.00 58.41 86.32 

Y-o-Y Growth NA NA 62.5% 7.7% (28.6%) 16.8% 47.8% 

Book Value Per Share (NGN) 324.0 259.4 406.8 1 854.1 1 036.2 1 027.1 1 027.7 1 113.2 

Y-o-Y Growth (20.0%) 56.8% 355.8% (44.1%) (0.9%) 0.1% 8.3% 

Tangible Book Value per share (NGN) 324.0 185.4 406.8 1 854.1 1 025.5 1 016.9 1 018.0 1 103.5 

Y-o-Y Growth (42.8%) 119.4% 355.8% (44.7%) (0.8%) 0.1% 8.4% 

Key Ratios 2005 A 2006 A 2007 A 2008 A 2009 A 2010 A 2011 E 2012 E 

Gross Loan to Deposit Ratio 48.9% 50.9% 55.2% 61.1% 85.7% 81.9% 83.6% 80.9% 

Gross Loan to Fund Ratio 48.9% 50.9% 55.2% 57.6% 84.9% 81.8% 83.5% 80.9% 

Net Interest Income to total income 47.7% 65.9% 56.5% 66.0% 95.1% 68.0% 72.0% 68.4% 

Cost to Income Ratio 70.7% 77.0% 57.2% 47.5% 65.6% 70.0% 59.7% 59.9% 

Interest Income to average interest earning assets 6.2% 7.7% 6.9% 6.1% 7.9% 9.1% 8.6% 9.1% 

Interest expense to average interest bearing liabilities 4.3% 3.1% 2.9% 4.4% 6.4% 4.0% 3.5% 4.0% 

Net Interest Spread 1.9% 4.6% 4.1% 1.7% 1.5% 5.1% 5.1% 5.1% 

Net Income Margin 10.2% 7.8% 28.8% 40.1% (11.0%) 17.3% 23.3% 25.1% 

Accumulated Provision as a % of loans & Advances 9.6% 10.9% 8.6% 4.3% 9.9% 8.2% 5.3% 5.1% 

Return on Equity (average) 3.6% 3.4% 21.2% 15.8% -2.5% 6.5% 9.6% 13.4% 

Return on Assets (average) 0.7% 0.6% 2.4% 2.3% -0.5% 1.5% 1.8% 2.0% 

Non-interest income to total income 72.3% 48.7% 51.9% 43.9% 48.6% 39.0% 43.3% 42.4% 

Provision expense as a % of advances 5.4% 2.2% 1.4% 1.5% 6.8% 2.6% 2.4% 1.3% 

Advances to equity 116.1% 194.0% 394.7% 147.5% 232.4% 259.8% 364.9% 420.9% 

8


PAN-AFRICAN 


BANKING 

Headquartered in Togo, Ecobank Transnational 

Incorporated (ETI), a public limited liability company, 

was established as a bank holding company in 1985 

under a private sector initiative spearheaded by the 

Federation of West African Chambers of Commerce and 

Industry with the support of ECOWAS, in a bid to try 

and break the dominance of foreign and state owned 

banks in West Africa. ETI commenced operations with 

its first subsidiary in Togo in March 1988. Today, ETI is 

a full-service regional banking institution employing 

over 11,000 staff in 755 branches and offices in thirty 

SSA countries, namely Benin, Burkina Faso, Burundi, 

Cape Verde, Cameroon, Central African Republic, Chad, 

Congo Brazzaville, DRC, Côte d'Ivoire, Gabon, The 

Gambia, Ghana, Guinea, Guinea Bissau, Kenya, Liberia, 

Malawi, Mali, Niger, Nigeria, Rwanda, Sao Tome & 

Principe, Senegal, Sierra Leone, Tanzania, Togo, 

Uganda, Zambia and Zimbabwe. 

• A difficult year for Ecobank Nigeria in 2009, in line 

with the broader industry, which saw it record a loss 

before tax of USD 16.6m, as well as losses by the 

southern Africa cluster, led to attributable earnings 

declining by 45.78% to USD 51.1m for the group. 

• In its 9M 11 results to September, net interest income 

put on 16.16% as NIMs improved to USD 399.0m. Net 

fee and commission went up by 45.16%, while net 

trading income also recorded strong growth of 

64.79%. The CIR improved to 67.91% from 70.70%, and 

despite an increase in provision charges of 26.73% y-oy 

to USD 80.4m, attributable earnings closed the 

period at USD 106.6m, up 51.86%. 

• Nigeria has been an Achilles heel for ETI, where it has 

not really gained enough scale. To address this, ETI 

has taken over one of the rescued banks, Oceanic, 

which will substantially boost its market position. 

• Pre-Oceanic, we value ETI, based on a DCF valuation, 

at US 10.8c per share, representing upside of 68.2% 

against the US 6.42c it currently trades at on its most 

liquid listing in Nigeria. A coverage based PBV average 

based on the last published post merger pro-forma 

accounts suggests a valuation of US 10.3c per share. 

BUY. 


BUY 


ETI:NL 

Current Price (USc) - BRVM 8.0 

Current Price (USc) - GSE 6.8 

Current Price (USc) - NSE 6.6 


Upside (%) - On most liquid listing (NSE) 64.6 

Liquidity (NSE) 

Market Cap (USD 000s) 636 596 

Shares (000) 9 913 368 


Ave. daily vol ('000) - 1 yr. 2 155 

Price Performance (NSE) 

Price, 12 months ago (USD) 9.5 

Change (%) (30.8) 

Price, 6 months ago (USD) 9.4 

Change (%) (30.0) 

Financials (USD 000s) 31 Dec F2010 2011F 2012F 

Loans & Advances 5 264 184 5 987 738 6 761 634 




EPS (USD) 1.1 1.6 2.5 

DPS (USD) 0.4 0.5 0.9 

NAV/Share (USD) 13.0 13.9 15.2 




PE* (x) 4.3 4.1 3.0 

PBV (x) 0.47 0.46 0.42 

RoaA (%) 1.2 1.4 1.6 

RoaE (%) 8.9 11.6 14.5 



* - trailing 

1.5 

1.4 

1.3 

ETI vs NSE ASI (Rebased) 

Strengths 

Largest pan-African geographical reach 

Robust cross border IT system/network 

Weaknesses 

Rollout costs have kept CIR higher than targets 

Nigeria has historically been a challenge in terms of 

1.2 

1.1 

1 

Strategic alliances with Bank of China, Nedbank 

and Old M utual 

consolidating market position, that situation prevails in eg Kenya 

High NPL ratios in East Africa 

0.9 

0.8 

0.7 

0.6 

Oppo rtunities 

Nigeria and Ghana acquisitions should see an 

improved performance in those markets 

T hreats 

Any challenges around integrating Ecobank Nigeria and Oceanic 

could negatively impact the time to realise synergies 

0.5 

17-Nov-10 

17-Dec-10 

17-Jan-11 

17-Feb-11 

17-Mar-11 

17-Apr-11 

ETI 

17-May-11 

17-Jun-11 

NSE ASI 

17-Jul-11 

17-Aug-11 

17-Sep-11 

17-Oct-11 

17-Nov-11 

Consolidation of other African operations as 

Increased regulatory risk due to cross border expansion 

expansion slows down 

Skills acquisition and retention across such a wide 

Will benefit from drive for increased intra regional trade geographical spread 

9

USD 000's 

USD 000's 


The turmoil in the Nigerian banking sector in 2009 had a 

negative impact on the group’s results for that financial 

year, as Ecobank Nigeria, a material component of the 

group, recorded a USD 16.6m loss before taxation, a 

number which was exacerbated by the depreciation of 

the naira. The southern Africa cluster also recorded a 

loss, having consisted of mainly new operations. The net 

result was that the group recorded an attributable 

earnings decline of 45.78% to USD 51.1m. A turnaround 

was observed in FY 10, despite Nigeria continuing to 

struggle. 

Net interest income for FY 10 recorded a 3.43% increase 

to USD 474.8m, as gross interest income fell 8.75% against 

a fall of 27.09% in the interest expense as yields fell in 

some of its markets, notably Nigeria, but this was offset 

by an increase in low cost deposits. 

Net non-interest income growth while positive, was also 

muted at just 2.55% to USD 424.9m. Gains in net fees and 

commissions, cash management, credit and corporate 

finance fees were tempered by a fall in trading and lease 

income during the year. Operating profit thus increased 

by 3.01% to USD 899.6m. Operating expenses were kept 

flat in FY 10, actually falling marginally by 0.54% to USD 

629.2m. Staff costs were up just 2.63% to USD 265.4m, as 

headcount was reduced by 1,000. Depreciation costs 

increased 11.74% as other operating expenses shed 5.58%. 

The provision charge fell by almost a third to USD 

101.5m, improved credit conditions across all markets 

offsetting gross provision increases of 7% and 15% in the 

WAMZ and CEMAC clusters. Nigeria accounted for 71% of 

the provisions, ahead of the anticipated sale to AMCON of 

loans in 2011. The decline in provision charges led to net 

operating income accelerating by 67.21% to USD 169.0m. 

1 200 000 

1 000 000 

800 000 

600 000 

400 000 

200 000 

0 


Attributable Earnings 

Total Operating Income 

Source: ETI/IAS 

12 000 000 

10 000 000 

8 000 000 

6 000 000 

4 000 000 

2 000 000 

0 


Deposits Loans & Advances 


180 000 

160 000 

140 000 

120 000 

100 000 

80 000 

60 000 

40 000 

20 000 

0 

Share of associate income was an immaterial USD 36,000, 

and PBT rose 67.24% to USD 169.0m. Without adverse 

currency movements, ETI estimates PBT would have been 

USD 177.0m. Attributable earnings, on the back of a 

decline in the effective tax rate, were up 120.7% to USD 

112.7m. Nigeria and East Africa recorded attributable 

losses for the period, while all others closed in the black. 

EPS was US 1.14c, up from US 0.52c in FY 09. DPS was US 

0.4c from US 0.3c. 

Total assets were up 16.21% to USD 10.5bn, dominated by 

the West African region with a combined 81%. Net loans 

and advances were up 10.45% to USD 5.3bn, while 

investment in securities was 76.38% higher at USD 

893.1m, being the notable movements on the asset side. 

The NPL ratio improved slightly to 15.2% by year end (FY 

09: 16.0%), attributed to improved book quality and 

recoveries. The Nigeria and East Africa clusters 

dominated NPLs, with 31.5% and 15.8% respectively. Total 

deposits were up 20.08% to USD 8.3bn, with savings and 

current accounts making up 75% of the total. The LDR fell 

y-o-y as deposits grew at a slower rate than advances to 

68.6% from 73.4%. RoAE and ROAA recovered to 8.9% (FY 

09: 4.3%) and 1.2% (FY 09: 0.6%), respectively. 

ETI 9M 11 Results Summary ('000s) 30-Sep-11 30-Sep-10 


Net fee and comission income 263 349 181 425 

Other Income 142 039 94 426 






30-Sep-11 30-Jun-11 

Loans and advances to customers 5 722 974 5 478 700 

Deposits from customers 8 910 796 8 995 399 

Total equity 1 332 921 1 351 113 


10

In its 9M 11 results to September, ETI continued to gain 

from margin improvements on interest income, as net 

interest income put on 16.16% to USD 399.0m, with NIMs 

up 60bp y-o-y but up by 30bp compared to H1 11, to 

6.2%. Fee and commission income gained 49.06% to USD 

278.9m, and net fee and commission went up by 45.16% 

to USD 263.3m, diluted by the 2.74x increase in fee and 

commission expense. While lease, dividend and other 

operating income were down y-o-y, their drop was more 

than compensated for by the 64.79% increase in net 

trading income to USD 131.6m. Operating income for the 

period was up 29.88% to USD 804.3m. 

Operating expenses saw a steep increase of 24.76% to USD 

546.2m, with staff costs going up by 22.77% to USD 

251.4m and other expenses rising by 31.66% to USD 

240.5m. Increased levels of compensation were said to be 

the main driver of the staff cost increase, while 

expansion and inflation drove other expenses growth. 

With revenues growing ahead of expenses growth, 

however, the cost to income ratio improved to 67.91% 

from 70.70%. 

Provision charges registered an increase y-o-y of 26.73% 

to USD 80.4m, a function of a growing loan book and 

management’s decision to be conservative with 

provisioning to boost reserves. All the regional clusters 

recorded a decrease in the charge with the exception of 

Francophone West Africa, which saw a 116% rise driven by 

high increases in Burkina Faso, Togo, Cote d’Ivoire and 

Mali. Management points out that the possibility of 

significant write backs come the year end exists due to a 

large proportion of “discretionary” provisions. PBT 

increased by 50.58% to USD 177.7m and attributable 

earnings closed the period at USD 106.6m, up 51.86%. EPS 

for the period was US 1.08c, up from US 0.71c. The retail 

banking arm, or ‘Domestic’ business was the worst 

performer, with a PBT contribution of USD 6.4m, while 

the Corporate banking business contributed USD 96.3m 

and Ecobank Capital contributed USD 72.1m. 

The balance sheet was flat quarter on quarter, up just 

0.97% to USD 11.9bn. Loans and advances to customers 

went up by 4.46% to USD 5.7bn, with holdings of treasury 

bills down 17.63% to USD 650.2m and trading assets down 

40.83% to USD 9.8m. The NPL ratio improved to 5.7% from 

13.6% at 9M 10 and 7.2% at H1 11. This was attributed to 

more NPL sales to AMCON, (customer loans in Nigeria 

actually down y-o-y), and the aforementioned prudent 

approach to lending, as well as write offs. 

Customer deposits, like loans and advances, were largely 

unchanged q-to-q, shedding 0.94% to USD 8.9bn, with the 

focus remaining on growing the low cost current and 

savings accounts, which were marginally higher at 77.74% 

of deposits compared with 77.0% at half year. The LDR 

was 64% compared with 61% at H1 11, while the CAR 

ended the period at 19.5%, unchanged from the H1 11 

position. 

Outlook 

Having hitherto been on an aggressive growth drive, 

ETI notes that bar another 5-6 countries, its 

geographical expansion programme is reaching the tail 

end. We expect that as the group moves into a 

consolidation phase, it should begin to realise more 

benefits from its diversified earnings base, while the 

CIR should start to trend downwards. Opportunities 

for cross border trade activity should also increase, 

especially as the continent is encouraged to push for 

more intra-regional trading. 

ETI has always targeted being in the top 3 banks in 

countries where it is present. While achieving this in 

roughly half of its markets, this has not been the case 

in the key Nigerian market. Extended talks to merge 

with First Bank collapsed, but following the banking 

crisis, ETI identified one of the wounded, Oceanic 

Bank, for acquisition. ETI on 24 October confirmed its 

100% acquisition of Oceanic. This was the first stage 

of the transaction, with the second set to be the 

merger of Oceanic with Ecobank Nigeria and the third 

the provision of additional capital by ETI to bring the 

minimum CAR of the new entity to 16%. The total 

transaction consideration saw: AMCON invest NGN 

290bn in Oceanic to bring its NAV to zero and ETI 

paying NGN 55bn to Oceanic shareholders. The NGN 

55bn was split 70% into c2.5m ETI ords and 30% as 

c1.1m participating cumulative prefs. This will 

achieve ETI’s goal of becoming a tier 1 bank in 

Nigeria, creating a bank with over 600 branches and 

1,450 ATMs. ETI recently announced that strategic 

partner Nedbank had provided it with a USD 285m 3yr 

convertible facility which Nedbank can choose to 

exercise between 24 and 36 months’ time to become 

a 20% shareholder in ETI (valuation implications are 

obvious). No further details of the facility were 

availed, although part of the funds will go towards the 

Oceanic acquisition. If the conversion does occur, this 

should prove positive for both parties. 

Aside from the Nigeria expansion, ETI also hoped to 

conclude the acquisition of Trust Bank in Ghana in Q4. 

However, it seems some local opposition to the 

transaction may delay the conclusion, with the BoG 

having set up a panel to look into the concerns. 


Pre-Oceanic, we value ETI, based on a DCF valuation, 

at US 10.8c per share, representing upside of 68.2% 

against the US 6.42c it currently trades at on its most 

liquid listing in Nigeria. (Upside is 34.46% on the BRVM 

and 58.95% on the GSE). A coverage based PBV 


accounts suggests a valuation of US 10.3c per 

share. While there do appear to be arbitrage 

opportunities across markets, the length of the 

process involved in moving shares across registers 

largely makes the trade unattractive as prices could 

move against one very quickly. BUY. 

11




Y-o-Y Growth 66.0% 53.3% 40.4% 17.6% 3.4% 15.6% 32.6% 


Y-o-Y Growth 31.5% 59.2% 63.9% (4.9%) 2.6% 26.9% 24.4% 

Total Operating Income (incl Prov) 221 453 335 373 524 839 713 053 733 660 798 170 1 004 314 1 289 543 

Y-o-Y Growth 51.4% 56.5% 35.9% 2.9% 8.8% 25.8% 28.4% 


Y-o-Y Growth 39.5% 62.2% 64.8% 14.8% (0.5%) 18.6% 25.9% 

Profit Before Tax 73 729 129 299 190 570 162 385 101 066 169 026 257 833 349 779 

Y-o-Y Growth 75.4% 47.4% (14.8%) (37.8%) 67.2% 52.5% 35.7% 

Attributable Net Income/Profit After Tax 41 502 69 350 107 373 94 195 51 075 112 716 154 313 209 343 

Y-o-Y Growth 67.1% 54.8% (12.3%) (45.8%) 120.7% 36.9% 35.7% 


Cash & Short term Funds 660 731 863 270 1 812 637 2 805 344 2 282 396 2 739 544 2 396 502 2 622 077 

Y-o-Y Growth 30.7% 110.0% 54.8% (18.6%) 20.0% (12.5%) 9.4% 


Y-o-Y Growth (47.4%) 305.6% (23.4%) 26.1% 10.5% 20.9% 11.0% 

Loans & Advances,Net 1 022 140 1 919 366 3 117 036 3 754 206 4 766 197 5 264 184 5 987 738 6 761 634 

Y-o-Y Growth 87.8% 62.4% 20.4% 27.0% 10.4% 13.7% 12.9% 

Deposits 1 672 278 2 623 822 5 176 993 6 227 160 6 951 655 8 347 887 9 683 467 10 895 007 

Y-o-Y Growth 56.9% 97.3% 20.3% 11.6% 20.1% 16.0% 12.5% 

Borrowings 25 977 50 660 216 298 345 157 253 902 225 975 406 755 366 080 

Y-o-Y Growth 95.0% 327.0% 59.6% (26.4%) (11.0%) 80.0% (10.0%) 

Shareholder's Equity 303 879 482 315 651 760 1 157 622 1 235 565 1 292 610 1 374 413 1 511 296 

Y-o-Y Growth 58.7% 35.1% 77.6% 6.7% 4.6% 6.3% 10.0% 


Earning per Share (kobo) 10.3 11.4 1.6 1.1 0.5 1.1 1.6 2.5 

Y-o-Y Growth 9.7% (86.0%) (32.3%) (52.2%) 120.7% 36.9% 58.7% 

Dividend Per Share (kobo) 3.00 3.00 0.40 0.20 0.30 0.40 0.54 0.86 

Y-o-Y Growth 0.0% (86.7%) (50.0%) 50.0% 33.3% 36.2% 58.7% 

Book Value Per Share (kobo) 75.7 78.9 9.7 13.3 12.5 13.0 13.9 15.2 

Y-o-Y Growth 4.2% (87.7%) 37.0% (6.0%) 4.6% 6.3% 10.0% 

Tangible Book Value per share (kobo) 75.7 78.5 9.5 13.1 12.3 12.9 13.7 15.1 

Y-o-Y Growth 3.6% (87.9%) 37.8% (5.9%) 4.6% 6.4% 10.1% 









Net Income Margin 18.7% 20.7% 20.5% 13.2% 7.0% 14.1% 15.4% 16.2% 


Return on Equity (average) 13.7% 17.6% 18.9% 10.4% 4.3% 8.9% 11.6% 14.5% 

Return on Assets (average) 1.9% 2.4% 2.1% 1.3% 0.6% 1.2% 1.4% 1.6% 




12


NIGERIA 


BANKING 

First established as City Securities Ltd in 1977, First 

City Merchant Bank, was licensed in 1982, becoming 

the first local bank in Nigeria to be established without 

government support. In 2001, the bank changed its 

name from First City Merchant Bank to First City 

Monument Bank, FCMB, as it transformed into a 

universal bank. A private placement of shares raised 

over NGN 7bn, followed by the conversion to a public 

liability company in 2004, whereupon it listed on the 

NSE. In the bank consolidation phase in the mid-2000s, 

FCMB acquired Cooperative Development Bank, Midas 

Bank and Nigerian American Bank (former Nigerian 

subsidiary of Bank Boston), and went from 26 branches 

to 150 branches by 2007. FCMB currently has a 

network of 149 branches and cash centres and 150 

ATMs. 

• FY 10 recorded a strong rebound in earnings, with the 

bottom line rising to NGN 7.9bn from an annualised 

NGN 847m in FY 09. The result was driven by nonfunded 

income growth of 59.39% to NGN 18.1bn, as 

net interest income actually declined during the year 

by 10.39% to NGN 21.9bn, as well as an improved CIR 

and a net provision write back position. 

• Contrastingly, it was the funded income line that 

drove revenues in the 9M 11 results, up 40.58% on a 

net basis to NGN 22.2bn, while non-interest income 

recorded an increase of 28.94%. The CIR further 

improved to 64.89% and attributable earnings closed 

the period at NGN 7.9bn, up 72.81%. 

• With its retail unit only just having broken even in Q3 

11, FCMB has sought to strengthen its position in the 

sector via the acquisition of one of the rescued banks, 

FinBank. 

• Our DCF valuation for FCMB comes out at NGN 9.56 

per share, substantially above its current share price 

of NGN 3.78. This is a pre-M&A valuation, and a 

coverage based PBV average based on the last 

published post merger pro-forma accounts suggests a 

valuation of NGN 7.99 per share. BUY. 


BUY 


FCMB:NL 





Upside (%) 152.9 

Liquidity 


Shares (m) 16 271 





Change (%) (51.5) 


Change (%) (51.5) 






EPS (NGN) 48.8 68.2 107.2 

DPS (NGN) 35.0 40.9 64.3 

NAV/Share (NGN) 828.3 870.8 947.8 




PE* (x) 5.5 5.5 3.5 

PBV (x) 0.45 0.43 0.40 

RoaA (%) 1.6 1.9 2.5 

RoaE (%) 6.0 8.0 11.8 



* - trailing 

1.5 

1.4 

1.3 

1.2 

1.1 

1 

0.9 

0.8 

0.7 

0.6 

0.5 

0.4 

0.3 

FCMB vs NSE ASI (Rebased) 

Strengths 

Weaknesses 

Investment and corporate banking 

Wholesale roots have meant interest margins lagged some peers 

High CAR 

Retai bank was loss making 

Early foray into microlending 

Relatively small branch network 


T hreats 

Large market for microlending 

Operational issues if they arise could delay business combination 

Acquisition to give more scale and increase potential customer base completion 

Cross selling opportunities Continued slump on NSE to retard investment banking earnings 

17-Nov-11 

17-Oct-11 

17-Sep-11 

17-Aug-11 

17-Jul-11 

17-Jun-11 

17-May-11 

17-Apr-11 

17-Mar-11 

17-Feb-11 

17-Jan-11 

17-Dec-10 

17-Nov-10 

FCMB 

NSE ASI 

13

NGN (m) 

NGN (m) 


A relatively marginal return in the 8 month period to Dec 

09 of NGN 564.3m was recorded, as non-interest income 

fell sharply, with transactional banking in particular hard 

hit, driven by a decline in loans and advances and 

deposits as the group sort to consolidate and restructure 

its balance sheet following 2009’s banking sector turmoil. 

50 000 

45 000 

40 000 

35 000 

30 000 

16 000 

14 000 

12 000 

10 000 

As with many of its peers, a strong rebound in earnings 

was witnessed in FY 10. Comparing the annualised 8M 09 

earnings to FY 10, net interest income for the latter was 

down 10.39% to NGN 21.9bn, with interest income up 

4.97% to NGN 43.6bn, strongly overshadowed by the 

26.98% increase in interest expense to NGN 21.7bn. 

Interest margins fell to a reported 5.3% from 6.0% y-o-y, 

attributed to market rates coming off, a focus on lower 

risk higher quality credit and treasury losses in Q1. 

Net non-interest income growth more than offset the 

negative funded income performance, putting on 59.39% 

to NGN 18.1bn. This was driven by higher transaction 

commissions as lending activity increased in earnest, 

while trading and dividend income in particular had a 

massive year although from a low base, generating NGN 

3.7bn from an annualised NGN 304.5m. Operating income 

increased accordingly by 11.71% to NGN 40.0bn. 

25 000 

20 000 

15 000 

10 000 

5 000 

0 



Source: FCMB/IAS 

400 000 

350 000 

300 000 

250 000 

8 000 

6 000 

4 000 

2 000 

0 

Costs were well contained, up just 2.96% y-o-y to NGN 

31.5bn, with staff expenses falling by 2.8% to NGN 14.3bn 

while directors’ emoluments were 30.7% lower at NGN 

627.9m. The focus on costs saw the cost to income ratio 

improving to a still high 78.67% compared with 85.35%. 

Provisions went from a charge of NGN 4.0bn to a net 

write back position of NGN 439.4m due to good recoveries 

combined with a higher quality book as well as AMCON 

sales. All the above factors led to net operating income 

going up seven-fold to NGN 9.0bn. 

After accounting for NGN 51.0m in associate income and 

a fall in the effective tax rate from 34.1% to 12.1%, 

attributable earnings rose to NGN 7.9bn from NGN 847m. 

This translated to EPS for the year of 48.8 kobo compared 

to an annualised 7.8 kobo while dividend per share was 35 

kobo, up from 7.5 kobo in the prior year. 

Total assets were up 16.17% to NGN 538.6bn, with net 

loans and advances surging northwards, up 37.73% to NGN 

330.4bn, while investment securities also reflected a 

large increase, up 53.43% to NGN 76.7bn. Having 

reassessed and consolidated its balance sheet in FY 09, 

FCMB in FY 10 grew the book aggressively in a bid to 

regain market share and increase the mix of higher risk 

assets to the portfolio, although still mainly targeted at 

the wholesale (and hence lower margin) market. The NPL 

ratio fell further to 5.5% from 8.7%, benefiting from 

margin loan sales to AMCON of NGN 9bn. Deposit growth 

was 19.92% to NGN 335.4bn, with a bias to more 

expensive term deposits (52.0% of total) at year end. The 

LDR was just shy of 100% from 85.3%. A CAR of 31% (FY 

09: 36%) suggested loan levels were sustainable. RoAE and 

RoAA closed at 5.8% and 1.6% respectively. 

200 000 

150 000 

100 000 

50 000 

0 



Source: FCMB/IAS 

FCMB Q3 11 Results Summary (m) 30-Sep-11 30-Sep-10 





Allowance for credit impairment (3 375) 1 771 



30-Sep-11 30-Jun-11 



Total equity 136 983 134 394 

Source: FCMB 

14

FCMB’s 9M 11 results to September reflected a slowdown 

in impetus from both the FY 10 rates of growth, which 

would be expected however given the higher base effect, 

as well as relative to H1 11. Gross earnings were up 

23.45% to NGN 55.0bn. Interest income drove revenue 

growth, increasing by 40.58% on a net basis to NGN 

22.2bn, as interest and discount income growth of 21.40% 

y-o-y well exceeded that of interest expense at 3.28%. 

NIMs were marginally down to 6.8% compared with 6.9% 

at 9M 10 and H1 11, as deposits grew ahead of advances 

in an environment of margin pressure. 

Non-interest income recorded an increase of 28.94% to 

NGN 15.6bn, hampered by a 15.86% fall in corporate 

finance fees as commissions went up by 95.56%, trading 

income by 10.93% and other income by 82.72%. Operating 

income increased by 35.52% to NGN 37.8bn y-o-y, and 

5.84% q-o-q. 

Operating expenses remained well shackled, up by just 

4.12% to NGN 24.5bn, leading to a massive improvement 

in the cost to income ratio from 84.46% to 64.89% on a y- 

o-y comparison, while the improvement from H1 11 was 

from 65.79%. 

Y-o-y provisions went from a net NGN 1.8bn written back 

to a charge of NGN 3.4bn. The NPL ratio still improved, 

however, following further AMCON sales, to 4.32% from 

5.52% at the year end. PBT went up by 62.01% y-o-y, with 

attributable earnings closing the period at NGN 7.9bn, an 

increase of 72.81%. Earnings at the half year stood at NGN 

5.3bn. 

Balance sheet growth was 3.84% from H1 11, with total 

assets at NGN 611.1bn. This was as a result of the AMCON 

sales diluted 4.62% increase in net loans and advances to 

NGN 318.9bn, as well as the 14.30% increase in 

investment securities to NGN 151.0bn. The advances book 

continued to be dominated by corporates, reflecting the 

bank’s wholesale roots, with just 19% of gross loans to 

retail customers, slightly up from 18% at the half year. 

While this makes the book lower risk, it obviously limits 

the extent to which loans can be repriced as the 

corporates would carry a lower risk profile while lending 

in that space is more competitive. The group also noted 

that there was a deliberate move to boost off balance 

sheet activities (up 94.24% from FY 10 to NGN 126.7bn) so 

as to limit the impact of the 0.3% AMCON levy which is 

based on total assets. As aforementioned, there was 

further improvement in the NPL ratio, while the coverage 

ratio declined to 104% from 114% at H1, a function of 

AMCON sales and attendant write-offs. The group had 

exposure to Zenon, which was expected to be resolved in 

Q4, with FCMB anticipating a 25% haircut on its AMCON 

sale. 

Customer deposits growth remained measured, up 2.25% 

to NGN 371.0bn, as the group maintained its strategy to 

realign the deposit mix towards lower cost current and 

savings accounts, the NIM effects of which would be fully 

felt in FY 12. The CAR ended the period at 30.48%, 

slightly lower than the 31% at FY 10 and H1 11. 

Outlook 

With its retail unit only just having broken even in Q3 

11, FCMB, like Access Bank and indeed ETI, has sought 

to strengthen its position in the sector via acquisition. 

The banking crisis led to an opportunity to acquire 

FinBank, a transaction which has now been approved 

by both sets of shareholders and regulators. Under the 

terms of the merger, AMCON was to recapitalise 

FinBank to a zero NAV, via an injection of NGN 

155.6bn in financial accommodation. FCMB would 

then inject NGN 6bn as equity into the bank, via an 

SPV, giving it 100% ownership. The consideration paid 

by FCMB of NGN 6bn would be split between existing 

FinBank shareholders (NGN 1.64bn by way of 10 kobo 

per share or 1 FCMB share for every 60 existing shares 

held) and AMCON (NGN 4.36bn by way of NGN 1.02 

per share or 1 FCMB share for every 6 scheme shares 

held). FCMB would also set aside NGN 16bn in capital 

to ensure FinBank’s CAR is sufficient until the merger, 

which management expects to be concluded by the 

latest, in Q3 2012. 

The positives arising from this merger for FCMB are 

clear. The most obvious will be the transformation of 

the bank’s funding profile from a wholesale slant to 

retail, and the impact on reducing cost of funds. The 

merger will immediately double FCMB’s retail and 

commercial customer pool to c1.2m, give FCMB access 

to a growing base of mobile payment customers, 

estimated at 300,000 presently, create cross selling 

opportunities and of course, give it access to an 

increased branch network, going from 149 branches to 

333. 

Other pluses arising from the merger will see the 

combined entity’s financial leverage increasing by 

about 50%, cost synergies leading to over 30% cost 

savings, a fall in the LDR to 64% from 85% at the time 

the 9M results were released, an improvement in the 

liquidity ratio to 86% from 54% as well as proceeds 

from any disposal of non-core subsidiaries of FinBank. 

With a maximum shareholder dilution of just 2% for 

FCMB expected to arise from the transaction, the deal 

is expected to be accretive very quickly for FCMB, 

with accelerated synergy benefits manifesting in Q4 

2012. 


Our DCF valuation for FCMB comes out at NGN 9.56 

per share, which is substantially above its current 

share price of NGN 3.78. This is a pre-M&A valuation, 

with a coverage based PBV average based on the last 

published post merger pro-forma accounts suggests a 

valuation of NGN 7.99 per share. BUY. 

15




Y-o-Y Growth 59.6% 246.5% 118.8% 16.8% (10.4%) 41.9% 27.2% 


Y-o-Y Growth 104.1% 83.5% 118.8% (49.9%) 59.4% 7.3% 21.4% 


Y-o-Y Growth 125.1% 119.7% 119.6% (21.2%) 27.0% 13.6% 29.0% 


Y-o-Y Growth 80.2% 128.8% 83.7% 53.6% 3.0% (0.8%) 15.6% 


Y-o-Y Growth 233.1% 107.9% 171.1% (93.7%) 602.4% 64.0% 57.1% 

Attributable Net Income/Profit After Tax 798 2 833 5 949 15 091 847 7 935 11 099 17 442 

Y-o-Y Growth 255.1% 110.0% 153.7% (94.4%) 837.4% 39.9% 57.1% 



Y-o-Y Growth 145.6% 77.2% 74.5% (35.6%) (45.9%) (49.2%) 11.0% 

Financial Assets held for Trading - 5 735 1 855 - 20 088 23 704 28 919 

Y-o-Y Growth NA NA (67.6%) (100.0%) NA 18.0% 22.0% 


Y-o-Y Growth 69.0% 321.2% 124.6% 27.0% 37.7% 11.1% 11.5% 

Deposits 27 123 72 093 203 308 277 454 279 694 335 402 392 351 451 154 

Y-o-Y Growth 165.8% 182.0% 36.5% 0.8% 19.9% 17.0% 15.0% 

Borrowings 250 - 13 144 24 539 30 179 25 116 28 884 33 216 

Y-o-Y Growth (100.0%) NA 86.7% 23.0% (16.8%) 15.0% 15.0% 


Y-o-Y Growth 248.6% 23.6% 329.7% (3.0%) 4.0% 5.1% 8.8% 



Y-o-Y Growth 42.8% 74.3% 115.6% (96.1%) 837.4% 39.9% 57.1% 


Y-o-Y Growth 73.3% 169.2% 42.9% (90.0%) 600.0% 16.9% 57.1% 

Book Value Per Share (kobo) 227.5 318.8 327.3 1 193.9 796.5 828.3 870.8 947.8 

Y-o-Y Growth 40.1% 2.7% 264.7% (33.3%) 4.0% 5.1% 8.8% 

Tangible Book Value per share (kobo) 227.5 318.8 327.3 1 193.9 759.1 790.9 833.5 910.4 

Y-o-Y Growth 40.1% 2.7% 264.7% (36.4%) 4.2% 5.4% 9.2% 














Provision expense as a % of advances 4.5% 0.9% 1.9% 1.6% 0.8% (0.2%) 1.2% 1.0% 


16


NIGERIA 


BANKING 

Founded in 1894, First Bank of Nigeria Plc (FBN) is one 

of the largest banks in Nigeria and indeed in West 

Africa. With over 685 branches as at Q3 11, the group 

has one of the largest branch networks in Nigeria. In 

2002, FBN established a wholly owned banking 

subsidiary in the United Kingdom, FBN Bank (UK) 

Limited. In 2007, FBN Bank (UK) set up its Paris office 

to serve as a marketing base to service francophone 

West Africa. FBN also has a representative office in 

South Africa and has obtained a licence to open a 

representative office in China. The group comprises 10 

subsidiaries, spanning asset management, investment 

banking, capital markets, insurance, microfinance, 

private equity, mortgage and pension fund custodian 

services. 

• One of Nigeria’s original ‘top tier’ banks, FBN came 

through the CBN’s audits unscathed in 2009, but 

suffered with the rest of the sector as the central 

bank issued new prudential guidelines. 

• After a drop in earnings in FY 09 to NGN 4.9bn, 2010 

saw a recovery in performance, with attributable 

earnings closing at NGN 33.4bn. 

• The recovery has continued in 2011, with 9M earnings 

increasing by 31.79% to NGN 42.9bn. 

• By year end, we should have seen the conclusion of 

AMCON’s NPL purchases from the market, which will 

also include FBN’s exposure to Sea Wolf of cNGN 

99bn. The group NPL ratio should thus continue to 

trend downwards going forward. 

• The group announced the acquisition of 75% of 

Banque International de Credit, a bank in the DRC, as 

part of its SSA expansion strategy. 

• Using a DCF valuation, we arrive at a target price for 

FBN of NGN 13.43, representing 49.0% upside on its 

current share price of NGN 9.01. As one of Nigeria’s 

traditional ‘top tier’ banks, we expect FBN to remain 

a major player in the sector. BUY. 

First Bank vs NSE ASI (Rebased) 


BUY 


FIRSTBAN:NL 





Upside (%) 49.0 

Liquidity 


Shares (m) 32 632 





Change (%) (30.4) 


Change (%) (33.3) 


Loans & Advances 1 151 195 1 277 967 1 516 099 




EPS (kobo) 102.4 153.4 177.2 

DPS (kobo) 60.0 84.4 97.5 

NAV/Share (kobo) 1 043.8 1 028.9 1 018.0 




PE* (x) 6.7 5.3 4.0 

PBV (x) 0.91 0.78 0.70 

RoaA (%) 1.5 2.1 2.2 

RoaE (%) 10.3 15.6 18.2 



* - trailing 

1.5 

1.4 

1.3 

1.2 

Strengths 

Top tier bank 

Large branch network 

Weaknesses 

Poor asset optimisation 

Relatively low RoE vs some peers 

1.1 

Strong brand 

Sea Wolf loan concentration 

1 

0.9 

0.8 

0.7 

0.6 

0.5 

Low cost deposit base 

Opportunities 

Relatively low LDR means room to grow 

risk assets 

SSA expansion 

(AMCON should resolve) 

Threats 

Nimbler, smaller players targeting its 

market share 

DRC acquisition high risk 

17-Nov-10 

17-Dec-10 

17-Jan-11 

17-Feb-11 

17-Mar-11 

17-Apr-11 

17-May-11 

17-Jun-11 

17-Jul-11 

17-Aug-11 

17-Sep-11 

17-Oct-11 

17-Nov-11 

Centralised processing centre 

Behind its peers in terms of SSA expansion 

rollout ongoing will see it playing catch up 

First Bank 

NSE ASI 

17


As with most of the Nigerian banks, FBN experienced a 

much better performance in FY 10, following the tumult 

of 2009, where earnings had fallen to NGN 4.9bn, (9M to 

December reflecting change in year end from March), 

from NGN 12.6bn in FY March 09. 

300 000 

250 000 

200 000 

150 000 

80 000 

70 000 

60 000 

50 000 

40 000 

After annualising the 9M results to Dec 09, net interest 

income was down 5.3% y-o-y to NGN 121.5bn, as falling 

yields as a function of excess liquidity during the year, as 

well as slow credit growth, had a negative impact. Loans 

and advances continued to dominate the interest income 

contribution with a 64.4% contribution, although falling 

from 68.3% as at Dec 09. Non-interest income, however, 

surged 32.9% to NGN 56.5bn, buoyed by fees and 

commissions in particular which were up 20%, while 

foreign exchange income also showed solid growth. 

100 000 

50 000 

0 

Source: FBN 

2005 

2008 

2007 

2006 


2011 E 

2010 

2009 


2012 E 

30 000 

20 000 

10 000 

0 

Following the CBN directed jump in provisioning in 2009, 

FY 10 saw the charge declining by 60.1% to NGN 21.6bn, 

with the majority of the clean up having been addressed 

in the prior year. The charge was inclusive of the 

mandatory 1% general provision (NGN 11.4bn) under the 

revised guidelines of the CBN. Recoveries of NGN 9.6bn 

also helped in reducing the charge, with the NPL ratio 

improving to 7.7% from 8.2% y-o-y. 

3 000 000 

2 500 000 

2 000 000 

1 500 000 

Operating expenses growth, up 15.2% to NGN 116.6bn, 

saw the cost to income ratio deteriorate to 65.5% from 

59.2%. Staff costs were well controlled, down 3.7% y-o-y, 

but other expenses growth of 37.1% offset this, due to 

increases in maintenance costs and in the NDIC (Nigeria 

Deposit Insurance Corporation) premium which was 

increased to 0.51% from 0.36% in 2009. Despite the 

deterioration in the CIR, the reduced provisions meant 

that net income increased by 158.2% to NGN 39.8bn. 

1 000 000 

500 000 

0 

Source: FBN 

2005 

2006 

2007 

Deposits 

2008 

2009 


2010 


2012 E 

Associate income fell 35.4% to NGN 43.2bn, but a large 

reduction in the effective tax rate from 63.1% to 22.6% 

saw attributable earnings up five-fold to NGN 33.4bn. A 

dividend of 60 kobo per share was proposed for the year, 

representing a payout ratio of 58.8%. 

The balance sheet saw total assets up 6.0% y-o-y to NGN 

2.3tn. Net loans and advances growth was limited both by 

the lower appetite of borrowers due to a downturn in 

economic activity, as well as tighter credit generation 

criteria by FBN following the 2009 crisis, to just 5.7%, 

closing the year at NGN 1.2tn. The largest chunk of the 

loan book was institutional at 45.7%, while the LDR was 

77.0% (FY 09: 75.8%). There was a strong increase in bond 

investments and treasury bill holdings, however, 

reflecting the risk aversion inherent in the market at the 

time. 

On the liabilities side, deposits grew by just 5.2% to NGN 

1.6tn, which was attributed by the group to a deliberate 

strategy to reduce expensive deposits and a focus on the 

lower cost current and savings accounts. These made up 

81% of deposits at FY 10. RoAE and RoAA closed the year 

at 10.3% and 1.5% respectively, with a CAR of 20.4%. 

5% 

Source: FBN 

3% 

2% 

7% 

7% 

10% 

Gross Loans & Advances Sectoral Split (Bank) 

3% 2% 

4% 

17% 

14% 

7% 

12% 6% 

Oil & Gas Downstream 

Oil & Gas Upstream 

Oil & Gas Services 

Government 

Consumer 

General 

Manufacturing 


Info and Comms 

Finance & Insurance 

Residential Mortgages 

Real Estate - Commercial 

18

The 9M results to 30 September 2011 have continued in 

the same vein as FY 10 in terms of improved earnings. 

Interest income was up 10.33% to NGN 150.4bn, while 

interest expense dropped by 32.63% to NGN 31.5bn, 

resulting in net interest income of NGN 118.9bn, an 

increase of 32.73%. The improvement came as higher 

interest rates filtered through on the asset side while the 

yield on deposits was kept relatively flat, offsetting the 

strong deposit growth. This scenario saw the cost of funds 

fall to 2.1% from 4.5% y-o-y, and slightly increase 

compared with H1’s 1.8%. The average yield on interest 

earning assets improved to 10.1% from 9.8% in the 

comparative period and 9.4% at H1 11. Consequently, 

margins went up to 8.1% (9M 10: 6.4% and H1 11: 7.8%). 

Included in interest income was a reclassification of NGN 

10.2bn from non-interest income, relating to the writing 

back of suspended interest following AMCON sales. 

Net fees and other income saw an even better 

performance, up 49.14% to NGN 60.8bn, as the 

contribution of non-interest to interest income shifted to 

33.83% from 31.27% at September 2010. This was driven 

by increased commission on turnover due to higher 

deposit volumes, increased transaction volumes and 

credit related fees, among other factors. Operating 

income thus increased by 37.86% to NGN 179.7bn. 

Operating expenses were up 27.63% to NGN 107.1bn and 

the cost to income ratio improved to 59.62% from 64.39%. 

The provisioning charge was 4x higher y-o-y at NGN 

23.5bn, (NGN 14.4bn at the half year). There was a 

notable increase in provisions for other assets, up to NGN 

4.9bn from NGN 600m at the half year, as the declining 

equity market led to large mark downs. PBT closed the 

period at NGN 49.0bn, an increase of NGN 20.43%, while 

attributable earnings were up 31.79% to NGN 42.9bn. 

The balance sheet shrank by 1.78% from the H1 position 

to NGN 2.9tn, with net loans and advances up 11.25% to 

NGN 1.3tn, while treasury bill holdings were up 5.7x to 

NGN 135.3bn and investments gained 44.87% to NGN 

510.8bn. On the liabilities side, deposits went up by 

38.63% to NGN 2.0tn, continuing to show strong growth. 

The reported NPL ratio improved to 4.74% from 5.82% y-oy, 

but reflected a deterioration from the 3.8% as at the 

H1 11. 

FBN Q3 11 Results Summary (m) 30-Sep-11 30-Sep-10 


Net fees and other income 60 779 40 753 






Outlook 

The focus for FBN going forward will remain on 

lowering the cost of funds to boost net interest 

margins, increasing the contribution of non-interest 

income by pushing fees and commissions, getting the 

cost to income ratio to stay below 60% and measured 

loan and advances growth. 

Based on the current performance and the conference 

call results update, we forecast earnings per share of 

153 kobo per share, an increase of 49.8% on FY 10, 

based on the assumption of improved net interest 

margins due to the increase in interest rates in Q4, 

lower cost of funds, cost to income ratio trending 

towards 60% and a provision to loan ratio of 5.1%. We 

forecast RoAE and RoAA ratios of 15.6% and 2.1% 

respectively for the full year. 

In the 9M results presentation, FBN indicated that 

negotiations were continuing for AMCON to buy the 

Sea Wolf loan, which was circa NGN 99bn, and that a 

haircut of approximately 10% was expected, 

(newspaper reports suggest this was concluded with 

AMCON buying the loan at between 85% to 95% of face 

value). While as indicated by FBN, the loan was 

performing, it was considered too large by AMCON and 

thus “systemically important”, while it also exceeded 

FBN’s single obligor limits. 

The group also announced the acquisition of 75% of 

Banque International de Credit, a bank in the DRC in 

line with its SSA expansion strategy. While the growth 

prospects in that market cannot be argued against, 

anecdotal evidence suggests that that is one of the 

more difficult markets to invest in, both from an 

infrastructure deficit and political risk perspective, 

and thus makes an interesting choice as a first foray 

into SSA. We are not sure it is the right one, but 

according to the numbers presented by FBN, it is 

buying into a profitable business, with a net income of 

USD 5m at FY Dec 2010, and total assets of USD 198m, 

net loans of USD 83m and deposits of USD 163m. 

Equity was at USD 21m, and management indicates it 

paid 2x book for the bank. 


Using a DCF valuation, we arrive at a target price for 

FBN of NGN 13.43, representing 49.0% upside on its 

current share price of NGN 9.01. As one of Nigeria’s 

traditional ‘top tier’ banks, we expect FBN to remain 

a major player in the sector. BUY. 

30-Sep-11 30-Jun-11 

Loans and advances to customers 1 272 224 1 226 020 


Total equity 321 817 321 044 

19




Y-o-Y Growth 10.0% 44.0% 87.5% 15.9% 26.3% 28.8% 32.8% 


Y-o-Y Growth 28.4% 7.1% 35.0% (17.4%) 77.2% 27.2% 19.9% 


Y-o-Y Growth 15.4% 32.5% 63.0% (24.3%) 78.9% 34.3% 28.5% 


Y-o-Y Growth 19.8% 33.0% 44.3% 12.0% 53.7% 19.4% 27.6% 


Y-o-Y Growth 29.9% 9.3% 97.8% (71.8%) 224.8% 67.2% 30.0% 


Y-o-Y Growth 33.2% 7.3% 95.9% (86.6%) 581.7% 67.4% 30.0% 



Y-o-Y Growth 36.0% 47.9% 89.1% (5.3%) 7.1% 49.0% 2.7% 


Y-o-Y Growth 34.6% 46.9% 4.2% (87.9%) 11.4% 403.6% 28.8% 

Loans & Advances,Net 125 022 179 004 221 038 469 670 1 089 287 1 151 195 1 277 967 1 516 099 

Y-o-Y Growth 43.2% 23.5% 112.5% 131.9% 5.7% 11.0% 18.6% 

Deposits 332 196 449 238 685 353 855 306 1 519 853 1 598 853 2 266 437 2 577 213 

Y-o-Y Growth 35.2% 52.6% 24.8% 77.7% 5.2% 41.8% 13.7% 

Borrowings - 22 101 29 414 35 473 124 617 118 386 112 467 

Y-o-Y Growth NA NA 33.1% 20.6% 251.3% (5.0%) (5.0%) 


Y-o-Y Growth 25.1% 34.2% 325.3% (12.5%) 9.4% 10.9% 11.3% 



Y-o-Y Growth (0.9%) (46.4%) 49.9% (93.7%) 506.0% 49.8% 15.5% 


Y-o-Y Growth 0.0% 20.0% (100.0%) NA 500.0% 40.6% 15.5% 

Book Value Per Share (kobo) 1 259.8 1 189.3 798.2 2 597.6 1 073.0 1 043.8 1 028.9 1 018.0 

Y-o-Y Growth (5.6%) (32.9%) 225.4% (58.7%) (2.7%) (1.4%) (1.1%) 

Tangible Book Value per share (kobo) 1 259.8 1 189.3 798.2 2 597.6 1 073.0 1 043.8 1 028.9 1 018.0 

Y-o-Y Growth (5.6%) (32.9%) 225.4% (58.7%) (2.7%) (1.4%) (1.1%) 
















20


NIGERIA 


BANKING 

Guaranty Trust Bank plc (GTB) was incorporated as a 

limited liability company licensed to provide 

commercial and other banking services to the Nigerian 

public in 1990. The bank commenced operations in 

February 1991, and in September 1996, became a 

publicly quoted company. GTB undertook its second 

share offering in 2004 and successfully raised over NGN 

11bn, ensuring it was satisfactorily poised to meet the 

NGN 25bn minimum capital base for banks introduced 

by the CBN in 2005. In 2007, the bank became the first 

Nigerian financial institution to undertake a USD 350m 

regulation S Eurobond issue and a USD 750m London 

listed GDR Offer. In December 2009, GTB successfully 

completed the first tranche of its USD 200m corporate 

bond. Along with the Nigerian operations, the bank has 

five offshore bank subsidiaries in the Gambia, Sierra 

Leone, Ghana, Liberia and in the UK. The group has a 

branch network of 186. 

• One of our preferred picks in the sector, GTB 

continues to perform well with consistent 

performance indicators. 

• After a relatively flat earnings growth performance in 

FY 09, attributable earnings for FY 10 were NGN 

38.9bn, up 36.02%. This was largely due to a fall in 

provisions, however, as a flat revenue performance 

and rising costs impeded operating income growth. 

• Earnings for 9M 11 closed the period at NGN 40.5bn, 

an increase of 33.30%, boosted by extraordinary 

income. 

• All Zenon related exposures were settled with AMCON 

by the H1 11 results to June. 


GTB of NGN 19.34, representing 36.2% upside on its 

current share price of NGN 14.20. GTB remains our 

number one pick in the sector. Forward earnings and 

dividend yields add weight to our recommendation, 

justifying its premium relative ratings. BUY. 


BUY 


GUARANTY:NL 





Upside (%) 36.2 

Liquidity 


Shares (m) 29 431 





Change (%) 7.9 


Change (%) (13.1) 






EPS (kobo) 166.8 202.9 213.7 

DPS (kobo) 100.0 121.7 128.2 

NAV/Share (kobo) 944.6 991.3 933.5 




PE* (x) 8.5 7.9 6.0 

PBV (x) 1.8 1.6 1.4 

RoaA (%) 3.5 3.9 4.1 

RoaE (%) 18.6 21.9 24.5 



* - trailing 

1.5 

GT Bank vs NSE ASI ( Rebased) 

Strengths 

Weaknesses 

1.4 

1.3 

1.2 

Top tier bank 

IT driven 

Relatively small branch network compared 

to other top tier players 

1.1 

1 

0.9 

Strong brand 

Consistenly solid performance ratios 

Zenon exposure 

(AMCON should resolve) 

0.8 

0.7 

0.6 

0.5 

17-Nov-10 

17-Dec-10 

17-Jan-11 

17-Feb-11 

17-Mar-11 

17-Apr-11 

17-May-11 

17-Jun-11 

17-Jul-11 

17-Aug-11 

17-Sep-11 

17-Oct-11 

17-Nov-11 

Opportunities 

Threats 

SSA expansion 

Large oil & gas exposure, so negative 

Focused on top end of the market, so movement in oil prices could have large 

remaining market segments potential area impact on loans and advances 

GT Bank 

NSE ASI 

21


In spite of the fall in interest rates during FY 10, GTB just 

about managed to sustain its net interest margin from FY 

09, recording 7.22% against 7.80%, as the interest income 

decline of 11.35% to NGN 114.0bn was less than the 

31.82% fall in interest expense. The average yield on 

interest earning assets was 10.41% (FY 09: 12.80%) against 

an average cost of funds of 3.18% (FY 09: 6.20%). Net 

interest income thus came out virtually flat, down 0.62% 

to NGN 83.9bn, courtesy of aggressive liability repricing. 

200 000 

180 000 

160 000 

140 000 

120 000 

100 000 

80 000 

60 000 

40 000 

20 000 

80 000 

70 000 

60 000 

50 000 

40 000 

30 000 

20 000 

10 000 

Net non-interest income was also down during the year, 

shedding 2.87% to NGN 39.6bn. While net fee and 

commission income increased 18.01% to NGN 31.0bn and 

net trading income was virtually unchanged at NGN 

7.9bn, mark to market losses on trading investments of 

NGN 3.1bn meant other operating income was a negative 

NGN 2.3bn against a positive NGN 4.0bn in FY 09. The 

split of non-interest to interest income was 26:74, 

marginally changed from 27:73 in 2009. 

0 

2005 

Source: GTB/IAS 

2008 

2007 

2006 



2010 

2009 


2012 E 

0 

Operating expenses growth was 14.83% during the period 

to NGN 65.3bn, as increases of 21.40%, 33.10% and 89.31% 

in general administration, premises and equipment and 

insurance premium costs, respectively, led to a 26.59% 

rise in other operating expenses. This was attributed to 

rising infrastructure and general costs. Staff costs on the 

other hand were down 4.49% to NGN 17.7bn. The cost to 

income ratio headed north to 52.9% from 45.4% in FY 09. 

The provision charge was a third of that in 2009 at NGN 

10.6bn as specific provisions were largely accounted for 

in the previous period. That decline proved the key driver 

for net operating income/PBT, which put on 35.86% to 

NGN 47.6bn. There was minimal AMCON impact for GTB in 

2010, with just NGN 1.7bn sold to the ‘bad’ bank. 

3 000 000 

2 500 000 

2 000 000 

1 500 000 

1 000 000 

500 000 

0 

2005 

Source: GTB/IAS 

2006 

2007 

Deposits 

2008 

2009 


2010 


2012 E 

Attributable earnings for the year was NGN 38.9bn, up 

36.02% from NGN 28.6bn and equating to earnings per 

share of 167 kobo. Dividends of 100 kobo per share were 

declared, up from 75 kobo in FY 09. Sierra Leone, Gambia 

and Ghana operations were profit and loss positive. 

Loans & Advances Sectoral Split (H1 11) 

Total assets grew 8.20% y-o-y to NGN 1.2tn, with a 

continued focus on the high end customer base meaning 

that loans and advances only went up by 5.11% to NGN 

604.1bn. On the other hand, investment in securities and 

financial assets held for trading put on 75.10% and 13.24% 

respectively. Deposits growth was more positive, 

supported by a continued ‘flight to quality’ as observed 

by the bank, as they gained 11.60% to NGN 779.1bn. The 

loan to deposit ratio deflated somewhat to 81.7% from 

85.5%. Oil and gas was the largest contributor to the loan 

book with 23% (including some Zenon exposure), followed 

by the manufacturing sector with 19%. The NPL ratio was 

notably better at 6.79% from 12.26% boosted by 

recoveries. Profitability ratios improved, with RoAE up to 

18.6% from 15.1% in FY 09, while RoAA improved to 3.5% 

from 2.8%. The CAR closed the year at 20.81%, down from 

25.99%. . 

2% 3% 

26% 

17% 

Source: GTB 

2% 3% 3% 4% 4% 

5% 

9% 

13% 

9% 

Government 

Capital Market 

Education 

Construction 

Transportation & Storage 

Real Estate 

General 


Info and Comms 

Manufacturing 

Oil & Gas 


Other 

22

The 9M results to 30 September 2011 saw gross earnings 

for GTB up 15.50% to NGN 138.4bn. Interest income 

increased by 10.87% to NGN 94.1bn, while interest 

expense was 20.61% lower at NGN 19.6bn. This led to net 

interest income gaining 23.78% to NGN 74.5bn. Net fee 

and commission income growth was not far behind at 

22.97% to NGN 32.0bn. Net foreign exchange income was 

NGN 5.7bn vs NGN 3.5bn in 9M 10, while income from 

investments was a quarter of the NGN 4.1bn in the 

comparative period. After accounting for the NGN 916m 

in underwriting income, total operating income came out 

at NGN 114.2bn, an increase of 21.05%. 

Operating expenses growth was contained to below our 

expectations, up just 4.61% to NGN 53.7bn, yielding a 

cost to income ratio of 47.01% compared with 54.39% 

during the comparative period, and 47.37% at H1 11. 

Loan loss expenses more than doubled to NGN 11.0bn (9M 

10: NGN 4.0bn) y-o-y, and were 36.88% up from H1 11’s 

NGN 8.0bn. Management had indicated at the half year 

that all AMCON related transactions for the group had 

been concluded, including GTB’s Zenon exposure. 

Profit before tax went up by 26.39% to NGN 49.3bn, and 

attributable earnings closed the period at NGN 40.5bn. 

The latter’s 33.30% rise included an extraordinary income 

item of NGN 2.2bn related to the disposal of the bank’s 

holding in one of its Small and Medium Enterprises Equity 

Investment Scheme positions. EPS was 173 kobo while 

HEPS was 164 kobo. 

Total assets grew 6.00% from the half year to NGN 1.5tn. 

Net loans and advances increased at a greater pace 

during Q3, up 12.18% to NGN 703.7bn, while treasury bill 

holdings dropped by 17.98% and investment securities 

were 16.79% higher. The NPL ratio improved to 2.78%, 

this compared with 3.61% at 30 June. Deposit growth was 

4.60% to NGN 957.8bn, possibly reflecting limited 

appetite in a rising interest rate environment. 

Outlook 

GTB looks set to perform strongly in FY 11, driven by 

efficiencies on the income side, (low cost of funds and 

liquidity to take advantage of interest rate hikes), as 

well as on the expenses side, with the CIR target of 

below 50% likely to be attained. The NPL ratio is 

reflective of the much cleaner book, while the 

possibility of write backs thanks to aggressive H1 

provisioning remains. 

Following the publication of the 9M results, we have 

revised our forecasts higher for FY 11, also adjusting 

for the extraordinary item recorded in Q3. We 

estimate diluted EPS to increase to 203 kobo 

(adjusted for an assumed 1 for 5 bonus issue), and 

dividend per share to be declared of 122 kobo, 

representing a payout ratio of 60%. These assumptions 

yield RoAE and RoAA ratios of 21.9% and 3.9% 

respectively. 



GTB of NGN 19.34, representing 36.2% upside on its 

current share price of NGN 14.20. With its consistent 

history of solid profitability, backed by impressive 

asset management and cost containment skills, GTB 

remains our number one pick in the sector. Forward 

earnings and dividend yields add weight to our 

recommendation, justifying its premium relative 

ratings. BUY. 

GTB Q3 11 Results Summary (m) 30-Sep-11 30-Sep-10 


Net fee and commission income 31 993 26 016 

RevPar = Estimate 







30-Sep-11 30-Jun-11 



Total equity 232 408 220 697 

23




Y-o-Y Growth 54.5% 38.3% 163.4% 70.9% (0.6%) 15.5% 39.2% 


Y-o-Y Growth 26.6% 31.7% 116.6% 18.8% (2.9%) 33.6% 17.2% 


Y-o-Y Growth 38.9% 42.2% 134.8% 15.6% 22.8% 21.3% 34.2% 


Y-o-Y Growth 28.6% 45.3% 116.3% 35.9% 14.8% 4.5% 32.4% 


Y-o-Y Growth 48.4% 45.9% 139.5% (7.0%) 35.9% 49.2% 31.7% 


Y-o-Y Growth 59.4% 52.0% 124.8% (2.1%) 36.0% 35.3% 31.7% 



Y-o-Y Growth 56.9% 71.0% 115.6% (6.8%) 6.7% 53.1% 16.6% 


Y-o-Y Growth 254.8% 31.7% (46.0%) 114.0% 13.2% 40.1% 23.3% 


Y-o-Y Growth 28.5% 37.5% 264.4% 36.3% 5.1% 11.9% 13.9% 

Deposits 97 445 215 774 294 546 532 239 698 109 779 115 1 031 538 1 236 349 

Y-o-Y Growth 121.4% 36.5% 80.7% 31.2% 11.6% 32.4% 19.9% 

Borrowings 6 910 9 238 58 063 64 324 79 763 89 921 161 857 178 043 

Y-o-Y Growth 33.7% 528.6% 10.8% 24.0% 12.7% 80.0% 10.0% 


Y-o-Y Growth 20.0% 22.6% 262.2% 9.5% 11.1% 18.1% 17.7% 



Y-o-Y Growth 59.4% 14.0% 20.5% (21.7%) 8.8% 21.6% 5.3% 


Y-o-Y Growth 23.4% (21.1%) 33.3% (25.0%) 33.3% 21.7% 5.3% 

Book Value Per Share (kobo) 566.2 679.3 624.8 1 213.2 1 062.9 944.6 991.3 933.5 

Y-o-Y Growth 20.0% (8.0%) 94.2% (12.4%) (11.1%) 4.9% (5.8%) 

Tangible Book Value per share (kobo) 564.0 677.1 623.1 1 210.8 1 061.0 943.1 990.0 932.5 

Y-o-Y Growth 20.0% (8.0%) 94.3% (12.4%) (11.1%) 5.0% (5.8%) 
















24


NIGERIA 


BANKING 

The Standard Bank Group of South Africa merged its 

Nigerian operations, Stanbic Bank Nigeria with that of 

IBTC Chartered Bank PLC in 2007. The merger, by way 

of the first ever tender offer in Nigeria led to USD 

525m in FDI and gave birth to a new entity now known 

as Stanbic IBTC Bank PLC (StanbicIBTC) which became 

part of the Standard Bank Group (50.8% owned). 

StanbicIBTC through its wholly owned stock broking and 

asset management subsidiary, IBTC Asset Management 

Limited, manages several mutual funds, including the 

IBTC Nigerian Equity Fund, which is Nigeria’s largest 

mutual fund. Traditionally strong as a corporate and 

investment bank, StanbicIBTC continues to look at 

strengthening its position in the sector. The group’s 

retail presence has grown since the merger, with 164 

branches as at 9M 11 from over 60 branches in 2007. 


SELL 


IBTCCB:NL 





Upside (%) (29.4) 

Liquidity 


Shares (m) 18 750 

Free Float (%) 41.8 




Change (%) (16.7) 


Change (%) (27.0) 

• A difficult year for the banking sector was 

compounded further for StanbicIBTC given its 

significant capital markets business as the NSE 

remained in the doldrums. 

• 2010 experienced a solid recovery as the group 

aggressively increased its risk assets while also 

working to improve its funding mix. Along with a 

notable decline in provision charges, this led to 

attributable earnings growth of 15.09% to NGN 8.8bn. 

• For 9M 11, bottom line earnings momentum declined 

compared with FY 10, up 6.47% to NGN 7.2bn, due to 

increased provisioning and the impact of the ongoing 

branch rollout on costs. 

• StanbicIBTC’s traditional corporate and investment 

banking bias will continue to weigh on its 

performance in the short to medium term, while it 

works to realign its funding mix. RoAE continues to 

lag many of its peers, while relative PER and PBV 

ratios are the highest in the sector. We value the 

group at NGN 5.32, indicating 29.4% downside on its 

current price of NGN 7.54. SELL. 






EPS (kobo) 50.4 51.8 66.8 

DPS (kobo) 39.0 38.8 50.1 

NAV/Share (kobo) 454.0 473.9 510.2 




PE* (x) 15.3 15.7 12.1 

PBV (x) 1.7 1.6 1.5 

RoaA (%) 2.4 2.1 2.2 

RoaE (%) 10.6 10.4 12.6 



* - trailing 

Stanbic IBTC vs NSE ASI 

Strengths 

Weaknesses 

1.5 

1.4 

1.3 

1.2 

1.1 

1 

0.9 

0.8 

0.7 

0.6 

0.5 

Majority owned by Standard Bank 

Diversified business 

Asset management good source of annuity 

income, especially when the market recovers 

Opportunities 

Nigerian acquisition/merger 

Funding mix remains relatively expensive 

reflecting corporate & investment bank roots 

Low RoAE 

Relatively small branch network vs top tier 

Threats 

Mergers/acqusitions by other 2nd tier peers 

Increased cross-selling opportunities 

will see them consolidate market position 

Stanbic IBTC 

NSE ASI 

Parent has strong emerging market ties 

Continued weakness of the NSE 

25


With 2009 having been perhaps rather more challenging 

on some levels for StanbicIBTC given the material 

contribution of its capital markets franchise to the group 

which meant that the massive decline in the NSE was 

more keenly felt, 2010 experienced a solid recovery. 

An aggressive increase in loans and advances during the 

year relative to deposit growth was enough to offset the 

drop in interest rates as net interest income went up by 

5.03% to NGN 26.4bn. Gross interest income was down 

16.03% and interest expense down 49.48% as NIMs fell by 

50bp to 6.9%. 

80 000 

70 000 

60 000 

50 000 

40 000 

30 000 

20 000 

10 000 

0 

2005 

2008 

2007 

2006 



2010 

2009 


2012 E 

14 000 

12 000 

10 000 

8 000 

6 000 

4 000 

2 000 

0 

Net non-interest income, after having fallen 7.04% in 

2009, was up 17.67% in FY 10, driven by a 38.49% rise in 

net fee and commission income to NGN 19.0bn as the 

group won new advisory mandates, increased AUM and 

recorded higher transaction volumes. Trading income, 

mainly foreign exchange related, was however, 36.24% 

lower to NGN 2.7bn. Total income thus rose 10.43% to 

NGN 48.4bn. 

Source: StanbicIBTC 

400 000 

Operating expenses grew well ahead of income at 19.65% 

to NGN 34.2bn. This increase was driven by the bank’s 

ongoing branch expansion programme, as the branch 

network doubled from 70 in 2009 to 141 by end 2010. The 

increase in infrastructure investments meant part of the 

cost increase was depreciation related and hence noncash, 

as the charge surged 57.15% to NGN 4.0bn. 

Commendably, staff costs were relatively well contained, 

up 10% y-o-y despite a 12% increase in headcount to 

2,248. The cost to income ratio, expectedly, deteriorated 

to 70.8% from 65.3% in the prior year. 

350 000 

300 000 

250 000 

200 000 

150 000 

100 000 

50 000 

0 

2005 

2006 

2007 

Deposits 

2008 

2009 

2010 



2012 E 

Impairment charges were down 87.24% during the year to 

NGN 620.0m, courtesy of specific provision charges 

halving to NGN 3.0bn while recoveries to the tune of NGN 

3.6bn were booked. AMCON activities were said to have 

had an “insignificant impact on NPLs and impairment 

charges”, with only NGN 14m in margin facilities having 

been released. 



A higher tax rate diluted the bottom line, and 

attributable earnings closed the year at NGN 8.8bn, an 

increase of 15.09% and EPS of 50.4 kobo. A dividend was 

declared of 39 kobo per share, a 77.38% payout ratio. 

Total assets grew 12.94% y-o-y to NGN 384.5bn, with net 

loans and advances up 48.02% to NGN 177.5bn as the 

group took advantage of a wider retail footprint to tap 

into the personal and business banking segments of the 

market which saw loans and advances up 105% to NGN 

53.6bn. With deposits up 16.91% to NGN 242.6bn, the 

loan to deposit ratio went to 77.1% from 64.1% in FY 09. 

As previously mentioned, recoveries performed well 

during the year, and as a result the NPL ratio improved to 

7.6% from 14.1%. RoAE improved to 10.6% from 9.4% in FY 

09, while RoAA improved to 2.4% from 2.2%. The CAR 

closed the year at 32.0%, down from 35.0% as the group 

increased its risk assets exposure. 

0% 

10% 

26% 


2% 3% 1% 

9% 

19% 

15% 

11% 

5% 

Government 

Public Utilities 

Agriculture 

Transport & Comm. 

Real Estate & Construction 

Private Households 


Manufacturing 

Oil & Gas 


Other 

26

StanbicIBTC’s 9M 11 results to 30 September recorded a 

gross earnings increase of 20.62% to NGN 49.6bn. Interest 

income increased by 11.90% to NGN 29.1bn, while interest 

expense gained 12.79% to NGN 6.4bn, leading to an 11.66% 

rise in net interest income to NGN 22.7bn. The increase 

came in the context of growth in the loan book, which 

was, however, offset by reduced income from interbank 

placements. With the CBN tightening its monetary policy 

and increased competition for lending, NIMs fell to 6.2% 

from 6.9% y-o-y (7.0% at the H1 11), as an increase in NIMs 

on the personal and business banking segment was 

negated by a drop in NIMs for corporate and investment 

banking. Net fee and commission income growth was a lot 

more positive at 21.61% to NGN 15.6bn while foreign 

exchange income was 127.04% higher at NGN 4.2bn. The 

former continued to benefit from scale increases and 

growth of the wealth business, while the latter benefited 

from exchange rate volatility and forex related corporate 

business. Total non-interest income was up 36.27% to NGN 

22.20, and operating income gained 22.04% to NGN 

43.0bn. 

Operating expenses remained under pressure as the 

branch expansion continued, (another 23 branches were 

added during the 9M period), the result of which was a 

cost increase of 24.43% to NGN 30.8bn. Depreciation also 

played a role, up 21.61% to NGN 3.8bn, as did the advent 

of the 0.3% of assets AMCON levy, which added NGN 

838.0m. The cost to income ratio deteriorated marginally 

to 71.77% compared with 70.39% y-o-y but was much 

improved from 75.18% at H1 11. Loan loss expenses were 

up 3x y-o-y to NGN 1.2bn from NGN 370.0m, as the group 

continued to grow its loan book, while the mandatory 1% 

general provision took effect. 

PBT growth was diluted from the top line because of the 

increases in provisions and expenses to 9.17%, closing at 

NGN 11.0bn, and attributable earnings ended the period 

6.47% higher at NGN 7.2bn. 

Total assets were up 15.01% y-o-y to NGN 488.8bn, driven 

by the increase in loans and advances, with the net 

number up 10.72% to NGN 215.5bn, while finance lease 

advances were 14.08% higher at NGN 22.5bn. Treasury bill 

holdings more than doubled, up 154.15% to NGN 27.2bn. 

The NPL ratio improved further to 6.2% from 7.6% at year 

end and 6.3% at H1 11. The top 4 group NPLs represented 

69% of the total, with the highest single contributor 

representing 56% of the total. The bank expected 

imminent resolution of that particular NPL. 

StanbicIBTC Q3 11 Results Summary (m) 30-Sep-11 30-Sep-10 


Net fee and commission income 15 636 12 857 




Allowance for credit impairment (1 151) (370) 



30-Sep-11 

30-Jun-11 



Total equity 488 751 384 541 


Outlook 

We expect a relatively flat earnings performance for 

StanbicIBTC in FY 11, although ahead of the previous 

year courtesy of improved net interest margins given 

the monetary tightening and rise in MPR during H2 and 

a better deposit mix, steady growth in non-interest 

income as well as a declining CIR. We forecast earnings 

per share of 51.8 kobo per share, and a dividend per 

share of 38.8 kobo. Our +1 RoAE and RoAE numbers 

come out at 10.4% and 2.1% respectively. We see 

earnings momentum picking up in 2012 and beyond, 

however, as the benefits of increased scale begin to 

manifest. To truly position itself amongst the top 

banks, we think StanbicIBTC may have to look at 

merging with/acquiring another player in the sector. 


While aggressively pursuing its retail expansion 

strategy, which should bear dividends in the longer 

term, StanbicIBTC’s traditional corporate and 

investment banking and asset management bias will 

continue to weigh on its performance in the short to 

medium term. RoAE continues to lag many of its peers, 

while relative PER and PBV ratios are the highest in the 

sector. We value the group at NGN 5.32, indicating 

29.4% downside on its current price of NGN 7.54. SELL. 

Deposit growth was 2.51% to NGN 228.1bn, as the 

continued exit from more expensive deposit positions was 

offset by the growing branch network. This was reflected 

in the positive shift in the deposit mix, with the lower cost 

demand/savings/domiciliary deposits now 68% of total 

deposits compared with 55% at both FY 10 and H1 11. The 

CAR at the end of the 9M period was down to 23.2%, a 

result of the growth in risk assets, from 25.9% at the half 

year and 32.6% at FY. 

27




Y-o-Y Growth 250.4% 105.4% 132.9% 12.3% 5.0% 14.2% 22.0% 


Y-o-Y Growth 14.1% 207.5% 56.3% (7.0%) 17.7% 28.6% 26.3% 


Y-o-Y Growth 74.4% 135.8% 83.4% 4.0% 22.6% 20.4% 24.0% 

Operating Expense -1 649 (3 000) (9 444) (22 850) (28 623) (34 246) (44 061) (53 962) 

Y-o-Y Growth 82.0% 214.8% 141.9% 25.3% 19.6% 28.7% 22.5% 


Y-o-Y Growth 70.6% 94.0% 33.1% (29.3%) 30.8% (0.3%) 29.0% 


Y-o-Y Growth 66.1% 86.8% 52.4% (33.9%) 15.1% 2.6% 29.0% 



Y-o-Y Growth 80.4% 401.3% 33.0% (31.2%) 16.5% (30.9%) (29.0%) 


Y-o-Y Growth 195.3% 87.4% (72.3%) 20.6% 5.9% 36.8% 39.3% 


Y-o-Y Growth 292.1% 66.3% 26.0% 16.8% 48.0% 33.9% 27.8% 

Deposits 10 163 55 492 138 689 177 464 207 534 242 618 321 940 386 132 

Y-o-Y Growth 446.0% 149.9% 28.0% 16.9% 16.9% 32.7% 19.9% 

Borrowings 2 657 3 338 27 533 12 201 12 647 18 272 23 754 27 317 

Y-o-Y Growth 25.6% 724.9% (55.7%) 3.7% 44.5% 30.0% 15.0% 


Y-o-Y Growth 107.0% 131.6% 7.0% 0.1% 4.5% 4.4% 7.7% 


Earning per Share (NGN) 55.5 55.5 71.0 64.0 43.4 50.4 51.8 66.8 

Y-o-Y Growth 0.0% 28.0% (10.0%) (32.1%) 16.2% 2.7% 29.0% 

Dividend Per Share (NGN) 20.00 20.00 25.00 40.00 30.00 39.00 38.83 50.09 

Y-o-Y Growth 0.0% 25.0% 60.0% (25.0%) 30.0% (0.4%) 29.0% 

Book Value Per Share (NGN) 360.1 457.2 688.0 434.0 434.7 454.0 473.9 510.2 

Y-o-Y Growth 27.0% 50.5% (36.9%) 0.1% 4.5% 4.4% 7.7% 

Tangible Book Value per share (NGN) 360.1 457.2 688.0 434.0 434.7 454.0 473.9 510.2 

Y-o-Y Growth 27.0% 50.5% (36.9%) 0.1% 4.5% 4.4% 7.7% 








Net Interest Spread -3.7% 3.0% 2.1% 2.5% 5.3% 7.3% 6.5% 6.6% 








28


NIGERIA 


BANKING 

United Bank for Africa Plc (UBA), is the product of the 

merger of what were at the time Nigeria’s third and 

fifth largest banks, the old UBA and the Standard Trust 

Bank Plc, respectively, and a subsequent acquisition of 

Continental Trust Bank Limited. Following Nigeria’s 

independence from Britain, UBA was originally 

incorporated in 1961. Today, UBA is one of Africa’s 

largest home grown financial institutions, offering 

universal banking to more than 7.2 million customers 

across 700 branches in 18 African countries, as well as 

having a presence in the USA, the UK and France. UBA 

has the largest branch network in Nigeria (600) and a 

total branch network of 726. 

• UBA’s recovery lagged many of its contemporaries in 

the sector in FY 10 following the challenges of FY 09, 

as falling net interest income and losses on AMCON 

sales led to attributable earnings decreasing to NGN 

668.0m from an annualised NGN 1.7bn in FY 09. 

• In 9M 11, the group continued to underperform, with 

profit before tax and exceptional items down 28.01% 

to NGN 12.1bn, while attributable earnings growth of 

91.29% was boosted by a much lower estimated 

effective tax rate. 

• The pan-African expansion has weighed down on 

performance over the years (ex-Nigeria African 

operations had a CIR of 88% as at the 9M period 

compared with 79% for the group), expectedly, but 

the tide seemed to have turned, with 9M 11 revealing 

a positive PBT number for the first time, of NGN 706m 

compared with a loss of NGN 2.9bn at FY 10. 

• UBA intends to raise NGN 500bn in additional capital 

as part of a strategic funding initiative, via a 

combination of debt and equity. This is likely to dilute 

earnings in the short to medium term. 


UBA of NGN 7.04, meaning the share is trading at a 

notable discount at its current price of NGN 2.50. We 

believe this reflects the market’s disappointment 

with recent results, as well as uncertainty around the 

structure (and indeed the need and timing) of the 

impending capital raise. HOLD 

1.4 

1.2 

1 

0.8 

0.6 

0.4 

0.2 

0 

17-Nov-10 

17-Dec-10 

17-Jan-11 

17-Feb-11 

17-Mar-11 

UBA vs NSE ASI 

17-Apr-11 

17-May-11 

17-Jun-11 

17-Jul-11 

17-Aug-11 

17-Sep-11 

17-Oct-11 

17-Nov-11 


HOLD 


UBA:NL 





Upside (%) 181.5 

Liquidity 


Shares (m) 32 335 





Change (%) (65.5) 


Change (%) (60.2) 





Attributable Earnings 668 13 575 24 668 

EPS (kobo) 2.6 46.6 76.3 

DPS (kobo) 5.0 8.4 19.1 

NAV/Share (kobo) 693.6 669.5 698.4 




PE* (x) 13.5 6.0 3.3 

PBV (x) 0.42 0.41 0.36 

RoaA (%) 0.0 0.7 1.1 

RoaE (%) 0.4 7.3 11.7 



* - trailing 

Strengths 

Weaknesses 

Top tier bank 

Inefficient asset mix despite largest branch 

Nigeria's largest bank by distribution 

network 

channels 

RoAE currently lagging peers 

Brand 

Relatively small branch network vs top tier 

Opportunities 

Threats 

Consolidate SSA operations 

Longer gestation period for SSA expansion will 

Room for growth in LDR to improve margins keep CIR high and restrict earnings growth 

Growth in SSA inter-regional trade 

Increased regulatory risk due to cross border expansion 

UBA 

NSE ASI 

29

NGN (m) 

NGN (m) 


Where many of its peers experienced an improved 

performance in FY 10 following the travails of FY 09, UBA 

had another relatively difficult year. 

Interest income was down 17.24% in FY 10 to NGN 

117.8bn compared to FY 09 (annualised), which was 

attributed to the declining yields on liquid assets for 

much of the year, of which UBA was a large holder. While 

the interest expense also declined, it was a relatively 

marginal fall of just 1.59% to NGN 47.0bn. Thus net 

interest income was down 25.15% y-o-y to NGN 70.8bn, 

while the net interest margin fell 1.40 percentage points 

to 6.0%. This was a function of the group’s asset mix, 

with loans and advances flat during the year while taking 

on higher holdings of lower yielding treasury bills. 

200 000 

180 000 

160 000 

140 000 

120 000 

100 000 

80 000 

60 000 

40 000 

20 000 

0 



Source: UBA/IAS 

45 000 

40 000 

35 000 

30 000 

25 000 

20 000 

15 000 

10 000 

5 000 

0 

Positively, non-interest income was up 29.60% y-o-y to 

NGN 67.4bn, driven by increases in fees and commissions 

income and gains on the sale of investments of NGN 

4.1bn. This brought operating income to NGN 138.2bn for 

the year, down 5.71%. Nigeria continued to dominate the 

revenue line, although the ex-Nigeria contribution did 

improve, from 10% in FY 09 to 12.9% in FY 10. 

Operating expenses growth was flat y-o-y, up just 1.22% 

to NGN 104.0bn. Staff costs increased by 21.28% to NGN 

37.9bn, but this was offset by the 9.53% decline in other 

expenses to NGN 55.1bn. Nevertheless, the cost to 

income ratio deteriorated to 75.23% compared with 

70.08%, propelled by ex-Nigeria expansion costs. The 

impairment charge was notably down from the FY 09 

figure of NGN 31.9bn to NGN 18.2bn as the group sought 

to adequately provide for all known losses in FY 10 

following the clean-up in FY 09. The reduction in 

provisions provided a fillip to net operating income which 

grew 33.60% to NGN 16.0bn. 

1 800 000 

1 600 000 

1 400 000 

1 200 000 

1 000 000 

800 000 

600 000 

400 000 

200 000 

0 




After accounting for share of losses from associates of 

NGN 138.0m and an NGN 12.7bn hit from losses on sale of 

assets to AMCON, attributable earnings of NGN 668.0m or 

2.6 kobo per share was recorded, (FY 09: NGN 1.7bn). A 

dividend of 5 kobo per share was declared for the year. 

Four of the ex-Nigeria operations were profitable, but 

overall the Africa operations remained loss making. 

Balance sheet growth was muted, with total assets 

growth of 4.45% y-o-y to NGN 1.6tn. Net loans and 

advances shrank by 1.25%, reflecting the sale of assets to 

AMCON and low risk appetite. The loan to deposit ratio 

was correspondingly slightly lower at 52.9% from 53.9%, 

with total deposits up just 1.04% to NGN 1.3tn, which was 

stated as a deliberate strategy to not chase deposits 

“beyond optimal levels” with rates expected to trend up 

in Q4 10. The contribution of ex-Nigeria operations to 

deposits increased to 14% from 11% in FY 09. Oil and gas 

was the largest contributor to the loan book with 16.4%, 

closely followed by the consumer sector at 13.6%, and the 

NPL ratio deteriorated to 8.8% from 7.9%. The poor 

bottom line return meant that RoAE and RoAA of just 

0.4% and 0.04% were recorded. CAR was 18.0%, a slight 

improvement from 16.3% at FY 09. 

10% 

10% 

10% 



Public Sector 

9% 7% 

Transport & Comm. 

6% 

6% 

Agriculture 

5% 

Others 

Oil & Gas 

20% 

Personal & Professional 

17% 

Maufacturing 

Financial Institutions 

Telecoms 


30

Interest income remained under pressure in UBA’s 9M 11 

results, down 5.77% gross, but with interest expense 

falling by a higher margin of 17.23%, net interest income 

gained 2.66% to NGN 56.1bn. Despite rising interest rates, 

the NIMs fell to 4.6% from 5.1% y-o-y, but were flat 

compared with H1 11. The disappointing performance was 

attributed to a “transmission lag effect” on earning assets 

yields. The group’s earning asset mix appears to still have 

some inefficiencies carried over from FY 10. The cost of 

funds did improve however, down to 2.60% from 4.00%. 

Non-interest income fared marginally better, up 4.61% to 

NGN 43.5bn. This was driven by increases in commissions 

and fees, transaction volumes and the performance of 

UBA’s remittance products. The combination of funded 

and non-funded income saw operating income increase by 

3.50% to NGN 99.6bn. The ex-Nigeria operations 

contributed 20% to operating income, up from 9.0% as at 

9M 10 and 19% at H1 11. Operating expenses reversed the 

interim results trend, increasing by 7.33% to NGN 78.9bn, 

resulting in a deterioration in the cost to income ratio to 

79.28% compared to 77.22% at H1 11 and 76.45% at 9M 10. 

Provision charges of NGN 8.7bn reflected a 53.11% rise y- 

o-y, as the mandatory 1% general provision came into 

effect, and seemingly high provisioning in the other 

African countries. Associate and JV share of profits was 

NGN 252.0m from a loss of NGN 75m in 9M 10. Without 

the non-recurring exceptional losses of NGN 5.3bn in the 

comparative period, PBT increased by 4.79% to NGN 

12.1bn. (Pre-exceptionals PBT was actually down 28.01%, 

however). Thanks to a lower effective tax rate, 

attributable earnings closed the 9M at NGN 11.1bn, up 

91.29%. Ex-Nigeria subsidiaries turned profitable, 

contributing NGN 706.0m to PBT on a net basis, against 

losses of NGN 2.9bn in FY 10. 

The balance sheet grew 11.42% from H1 11 to NGN 2.0tn. 

Net loans and advances shrunk by 1.47% during the 

quarter to end the 9M at NGN 705.3bn. Loan growth 

would have been higher (+23%), were it not for NGN 

88.0bn in sales to AMCON. The group NPL ratio improved 

to 6.0% (Nigeria 3.8%) from 10.8% at H1 11. Contrastingly, 

deposits and managed funds were 5.96% higher to NGN 

1.5tn. Gross LDR ended the period at 49.3% against 

53.62% at H1, while the CAR increased in sympathy to 

20.0% (H1 11: 17.0%). 13.7% (H1 11: 14.3%) of net loans 

and 16.0% (H1 11: 15.0%) of deposits were from Africa 

outside Nigeria. RevPar = Estimate 

UBA Q3 11 Results Summary (m) 30-Sep-11 30-Sep-10 








Outlook 

UBA will continue to focus on consolidating its 

position as one of the premier banks in Nigeria, while 

still looking for opportunities to expand further into 

the rest of the continent, with Angola and Mali in the 

pipeline. While we expect the group to improve on its 

H1 performance, with net interest margin and income 

improvements expected as loan growth mainly came 

through towards the end of the half, we think the 

pan-African expansion and cost implications thereof 

will continue to put a drag on profitability in the short 

to medium term. 

Post balance sheet, the group also announced its 

intention to raise NGN 500bn in additional capital as 

part of a strategic funding initiative, with proceeds to 

go into “infrastructure funding, opportunistic 

acquisitions and the consolidation of the bank’s 

channel and IT infrastructure across Africa.” 

Shareholders of UBA have ratified the capital raising 

exercise. The fund raising, according to a press 

release, is proposed to be a combination of debt and 

equity. The debt, to be issued in tranches, will be at a 

fixed or floating rate and is callable at the end of five 

years. The equity fund will be a combination of 

private placement and/or a GDR program to be listed 

on the London Stock Exchange. Further details are yet 

to be published. 



UBA of NGN 7.04, with earnings recovering based on 

improved interest margins as risk assets increase, 

growing non-interest income and a falling CIR as the 

ex-Nigeria African operations continue to contribute 

positively. This suggests the share is trading at a 

notable discount at its current price of NGN 2.50. 

This, we believe, reflects the market’s 

disappointment with recent results, where it has 

failed to match the performance of its peers, 

particularly on the net interest line, while the African 

expansion has thus far not brought the returns 

investors may have hoped. A PBV of 0.42x reflects the 

apathy towards the stock. The capital raise will likely 

lead to further dilution in the short to medium term, 

and we await more details on the need, timing and 

intended use of funds. HOLD. 

30-Sep-11 

30-Jun-11 



Total equity 2 025 379 1 817 831 

Source: UBA 

31


Income Statement Summary 2006 A 2007 A 2008 A 2009 A 2010 A 2011 E 2012 E 

Net Interest Income Before Loss Provision 30 739 45 075 75 093 118 189 70 776 71 333 92 591 

Y-o-Y Growth 46.6% 66.6% 57.4% (40.1%) 0.8% 29.8% 

Non Interest Income 32 754 35 733 53 058 65 046 67 441 69 135 84 589 

Y-o-Y Growth 9.1% 48.5% 22.6% 3.7% 2.5% 22.4% 

Total Operating Income (incl Prov) 57 922 77 106 125 535 143 396 120 004 132 937 165 297 

Y-o-Y Growth 33.1% 62.8% 14.2% (16.3%) 10.8% 24.3% 

Operating Expense (45 111) (47 581) (68 713) (128 404) (103 981) (112 964) (128 910) 

Y-o-Y Growth 5.5% 44.4% 86.9% (19.0%) 8.6% 14% 

Profit Before Tax 12 811 25 364 48 029 6 637 3 219 20 111 36 545 

Y-o-Y Growth 98.0% 89.4% (86.2%) (51.5%) 524.8% 81.7% 

Attributable Net Income/Profit After Tax 11 550 21 540 41 239 2 113 668 13 575 24 668 

Y-o-Y Growth 86.5% 91.5% (94.9%) (68.4%) 1932.2% 81.7% 

Balance Sheet Summary 2006 A 2007 A 2008 A 2009 A 2010 A 2011 A 2012 E 

Cash & Short term Funds 471 494 570 315 774 957 538 420 370 328 469 231 475 444 

Y-o-Y Growth 21.0% 35.9% (30.5%) (31.2%) 26.7% 1.3% 

Financial Assets held for Trading 207 341 157 519 174 005 42 035 123 455 234 565 304 934 

Y-o-Y Growth (24.0%) 10.5% (75.8%) 193.7% 90.0% 30.0% 

Loans & Advances,Net 109 896 320 406 431 410 636 793 628 811 724 149 862 406 

Y-o-Y Growth 191.6% 34.6% 47.6% (1.3%) 15.2% 19.1% 

Deposits 762 574 905 806 1 365 289 1 261 457 1 274 627 1 603 356 1 822 717 

Y-o-Y Growth 18.8% 50.7% (7.6%) 1.0% 25.8% 13.7% 

Borrowings 1 135 1 135 - 14 760 82 144 193 038 183 386 

Y-o-Y Growth 0.0% (100.0%) NA 456.5% 135.0% (5.0%) 

Shareholder's Equity 48 835 168 078 195 281 186 829 179 426 194 822 225 817 

Y-o-Y Growth 244.2% 16.2% (4.3%) (4.0%) 8.6% 15.9% 

Per Share Data 2006 A 2007 A 2008 A 2009 A 2010 A 2011 A 2012 E 

Earning per Share (kobo) 187.2 261.9 314.0 9.8 2.6 46.6 76.3 

Y-o-Y Growth 39.9% 19.9% (96.9%) (73.7%) 1706.4% 63.5% 

Dividend Per Share (kobo) 100.00 120.00 100.00 10.00 5.00 8.40 19.07 

Y-o-Y Growth 20.0% (16.7%) (90.0%) (50.0%) 67.9% 127.1% 

Book Value Per Share (kobo) 791.6 2 043.3 1 486.8 866.7 693.6 669.5 698.4 

Y-o-Y Growth 158.1% (27.2%) (41.7%) (20.0%) (3.5%) 4.3% 

Tangible Book Value per share (kobo) 791.6 2 043.3 1 486.8 850.6 680.2 657.5 687.6 

Y-o-Y Growth 158.1% (27.2%) (42.8%) (20.0%) (3.3%) 4.6% 

Key Ratios 2006 A 2007 A 2008 A 2009 A 2010 A 2011 E 2012 E 

Gross Loan to Deposit Ratio 15.7% 37.0% 32.6% 53.9% 52.9% 50.9% 52.8% 

Gross Loan to Fund Ratio 15.7% 37.0% 32.6% 53.3% 49.7% 45.4% 48.0% 

Net Interest Income to total income 53.1% 58.5% 59.8% 82.4% 59.0% 53.7% 56.0% 

Cost to Income Ratio 71.0% 58.9% 53.6% 70.1% 75.2% 80.4% 72.8% 

Interest Income to average interest earning assets 7.0% 7.6% 8.8% 12.0% 7.8% 7.4% 8.1% 

Interest expense to average interest bearing liabilities 3.5% 3.4% 3.6% 4.5% 3.6% 4.0% 4.5% 

Net Interest Spread 3.5% 4.2% 5.2% 7.5% 4.3% 3.4% 3.7% 

Net Income Margin 19.9% 27.9% 32.9% 1.5% 0.6% 10.2% 14.9% 

Accumulated Provision as a % of loans & Advances 9.5% 4.9% 3.3% 7.2% 9.8% 9.6% 9.3% 

Return on Equity (average) 23.7% 19.9% 22.7% 1.1% 0.4% 7.3% 11.7% 

Return on Assets (average) 1.3% 2.1% 2.9% 0.1% 0.0% 0.7% 1.1% 

Return on risk weighted assets 1.1% 2.3% 3.0% 0.1% 0.0% 0.5% 1.5% 

Non-interest income to total income 56.5% 46.3% 42.3% 45.4% 56.2% 52.0% 51.2% 

Provision expense as a % of advances 4.7% 1.1% 0.6% 5.9% 2.7% 1.5% 1.7% 

Advances to equity 225.0% 190.6% 220.9% 340.8% 350.5% 371.7% 381.9% 

32


NIGERIA 


BANKING 

The bank was incorporated on 30 May 1990 as Zenith 

International Bank Limited, as a private limited 

company, and was licensed to carry on the business of 

banking in June 1990. The bank changed name to 

Zenith Bank Plc on 20 May 2004, and its shares were 

listed on the NSE on 21 October 2004. The group now 

has operations not only in Nigeria, but also in Ghana, 

the UK, Sierra Leone, the Gambia and a rep office in 

South Africa. The group has a network of 315 branches. 

• Driven by a reduction in the net provision charge and 

a lower tax rate, Zenith saw attributable earnings 

more than double in FY 10 to NGN 37.4bn compared 

with the annualised FY 09 results. 

• That earnings momentum was not sustained through 

9M 11, however, as this time higher provisions as well 

as cost pressures led to attributable earnings growth 

of a still impressive 37.91% to NGN 42.5bn. 

• The ‘rest of Africa’ operations continued to be a 

positive contributor to the bottom line on a net basis. 

• Zenith should have concluded any sales to AMCON by 

31 st October 2011 in line with the target set by the 

‘bad bank’. Its main exposure requiring to be purged 

was to Zenon. Zenith participated in the NPL sale to 

AMCON in H1 to the tune of NGN 37bn, for which the 

bank received NGN 17bn in AMCON bonds, while NGN 

35bn in write backs/recoveries was recorded. The 

NPL ratio remained below 4% and is expected to 

remain at current levels going forward. 

• The group remains very liquid, with a relatively low 

LDR. With the MPR rate having risen in in H2, we 

expect Zenith to benefit through improved NIMs. The 

LDR at 56.60% also provides a lot of room for risk 

asset growth going forward. 


Zenith Bank of NGN 16.68, representing 45.7% upside 

on its current share price of NGN 11.45. After GTB, 

this is our second favourite pick in the sector. BUY. 


BUY 


ZENITHBA:NL 





Upside (%) 45.7 

Liquidity 


Shares (m) 31 396 





Change (%) (24.4) 


Change (%) (24.2) 


Loans & Advances 749 009 916 313 1 087 716 




EPS (kobo) 119.2 178.5 221.6 

DPS (kobo) 85.0 89.3 110.8 

NAV/Share (kobo) 1 158.0 1 283.8 1 450.2 




PE* (x) 7.3 6.4 5.2 

PBV (x) 0.9 0.9 0.8 

RoaA (%) 2.1 2.6 2.8 

RoaE (%) 10.6 14.6 16.1 



* - trailing 

Zenith Bank vs NSE ASI 

1.5 

1.4 

1.3 

1.2 

1.1 

1 

0.9 

0.8 

0.7 

0.6 

0.5 

17-Nov-10 

17-Dec-10 

17-Jan-11 

17-Feb-11 

17-Mar-11 

17-Apr-11 

17-May-11 

17-Jun-11 

17-Jul-11 

17-Aug-11 

17-Sep-11 

17-Oct-11 

17-Nov-11 

Strengths 

Weaknesses 

Top tier bank 

Somewhat conservative as shown by low LDR and high 

Branch network 

CAR, could sweat assets harder 

IT focused 

Zenon loan - should now be resolved via AM CON 

Strong, liquid balance sheet 

Focus on increasingly competitive top-end corporate space 


T hreats 

M id to lower end of the market 

M id-tier M &A activity to lead to increased competition 

Room for growth in LDR to improve margins 

with e.g. Zenith branch network falling in pecking order 

Increase contribution from SSA businesses Increased regulatory risk due to cross border expansion 

Zenith Bank 

NSE ASI 

33

NGN (m) 

NGN (m) 


The 15M Dec 09 results, again a function of the 

harmonisation of bank year ends to December by the 

CBN, saw Zenith produce a performance that given the 

state of affairs, was relatively impressive, with earnings 

of NGN 20.6bn being attained. 

On an annualised basis in comparison with FY 10, the 

latter recorded net interest income growth of 4.42% to 

NGN 91.5bn, as a 17.81% fall in interest income to NGN 

127.3bn was offset by the even bigger interest expense 

decline of 46.82% to NGN 35.7bn, as market interest rates 

declined. The increase in lower cost demand and savings 

deposits to 71% of the total from 63% at the prior period 

reflected the change in deposit structure to facilitate 

better yields. 

250 000 

200 000 

150 000 

100 000 

50 000 

0 



Source: Zenith Bank 

60 000 

50 000 

40 000 

30 000 

20 000 

10 000 

0 

Conversely, non-interest income was down 3.68% y-o-y to 

NGN 60.6bn, hamstrung by a 31.28% decline in foreign 

exchange traded income to NGN 10.8bn which offset the 

4.93% increase in fees and commissions to NGN 46.2bn. 

Operating expenses growth, although growing ahead of 

revenue, was well contained to a sub-inflation 7.88%, 

closing the year at NGN 97.8bn (FY 09: NGN 90.6bn). The 

cost to income ratio thus worsened to 64.26% from to 

60.18%. FY 09 had seen provisions jump to NGN 31.9bn, 

driven by CBN policy, and the number came down 

substantially in FY 10 to NGN 4.4bn, with large capital 

market positions in particular having been provided for in 

the prior year. As a result, net operating income surged 

(in this case also PBT) by 78.23% to NGN 50.0bn. 

Attributable earnings more than doubled to NGN 37.4bn 

(FY 09: 16.5bn), benefiting from a lower tax rate of 

25.21% compared with 41.28% on the annualised 

comparatives. The dividend proposed for the year was 85 

kobo per share, an 88.89% increase and payout ratio of 

71.43%. Nigeria remained the dominant contributor to the 

group with a 93.49% contribution to revenues. 

1 800 000 

1 600 000 

1 400 000 

1 200 000 

1 000 000 

800 000 

600 000 

400 000 

200 000 

0 




The balance sheet recorded total assets growth of 14.18% 

y-o-y to NGN 1.9tn. Net loans and advances growth was 

cautious, growing by 6.42% to NGN 749.0bn, as the loan 

to deposit ratio decreased to 58.2% from 64.1%. The loan 

book as at FY 10 was well diversified, with no single 

sector comprising more than 10% of the total. The NPL 

ratio improved to 5.9% from 6.5%. As a result of the 

conservative loan book growth, the group invested in 

more liquid assets, with financial assets held for trading 

and investments in securities up 26.84% and 33.61% 

respectively. 

Deposits growth was well ahead of the growth in loans 

and advances at 14.50% to NGN 1.3tn. As previously 

mentioned, the lower cost deposit mix improved during 

the year helping to boost net interest income, and 

customer deposits at 69.6% (FY 09: 70.7%) continued to 

dominate the funding mix. RoAE and RoAA closed the year 

at 10.6% and 2.1% respectively, with the reported CAR at 

33%. 

6.9% 

1.8% 

6.4% 

4.6% 

1.0% 

7.3% 

9.3% 


5.6% 

Loans and Advances Sectoral Split (H1 11) 

2.4% 

6.4% 

5.7% 

2.3% 

6.7% 

5.3% 

9.7% 

5.8% 

8.0% 

4.9% 

Power 

Flour Mills 

Cement Manufacturing 

Food & Processing 

Beverages & Tobacco 

Other Manufacturing 

Upstream Oil & Gas 

Downstream Oil &Gas 

Transportation 

Communication 


Capital market 

Other 

Consumer Credit 

Real Estate & Construction 

Government 

Agriculture 

Finance and Insurance 

34

For the 9M results to 30 September 2011, gross earnings 

were up 31.06% to NGN 183.0bn. Both net interest income 

(up 48.85% to NGN 94.0bn) and non-interest income (up 

33.64% to NGN 63.2bn) showed an impressive growth 

trajectory. The growth in net interest income was 

particularly impressive as income went up 29.73% against 

a decline in the interest expense of 11.73%. This led to an 

improvement in NIMs to 10.50% from 7.52% at H1 11 and 

5.95% at year end. Fees and commissions income made up 

the bulk of the non-funded income at 78.4% and were 

mainly responsible for the increase in that line item. 

Operating income increased by 42.58% to NGN 157.3bn, 

but that notable growth rate was overshadowed by the 

44.19% increase in operating expenses to NGN 99.9bn. 

This led to the cost to income ratio declining to 63.52% 

against 62.71% in the comparative period, continuing the 

trend from the half year, where inflation and mandatory 

provisions were cited as the main contributors to the 

deterioration of the ratio. 

The provisioning charge was 3.5x higher y-o-y at NGN 

7.2bn, (NGN 5.4bn at the half year). The higher costs 

diluted PBT growth to 28.03%, but a lower effective tax 

rate reversed that impact with attributable earnings up 

37.91% to NGN 42.5bn. 

The bulk of the group’s earnings, 95.45%, came from the 

Nigeria operation, with the ‘Rest of Africa’ contributing 

NGN 1.24bn (9M 10: NGN 1.2bn) and Europe NGN 712.0m 

against NGN 426.0m in 9M 10. 

The balance sheet grew 7.30% from the H1 11 position to 

NGN 2.2tn. Net loans and advances were up 5.79% to NGN 

839.9bn, while deposits were up at a slightly higher pace 

of 6.89% to NGN 1.5tn. The published NPL ratio showed a 

30bp deterioration to 3.6% compared with 3.3% at the 

interim stage, but was almost half the 6.4% ratio at FY 

10. The loan to deposit ratio increased slightly to 56.60% 

from 55.97% at H1 11. Rising yields on treasury bills were 

reflected in the 23.11% increase in treasury bill holdings 

to NGN 442.9bn. The CAR remained well above regulatory 

requirements at 28.5% (H1 11: 28%). 

ZENITH Q3 11 Results Summary (m) 30-Sep-11 30-Sep-10 








30-Sep-11 

30-Jun-11 



Total equity 380 604 367 754 


Outlook 

Zenith will continue to focus on competing for market 

share, but focused on the very competitive top end of 

the corporate market, the strategy being to fund high 

quality assets with cheap retail deposits. It will also 

maintain its technologically driven bias, as well as 

look for more opportunities for entering new markets 

and further diversifying its product and geographical 

mix. Cost containment is another facet the group will 

focus on as it aims to keep driving down its CIR. The 

bank is also expected to have completed its AMCON 

sales as per the deadline set by AMCON of 31 October, 

largely related to its exposure to Zenon. 

We expect Zenith to more or less maintain the same 

momentum in earnings as shown at the 9M results, 

with an improved performance into 2012 buoyed by 

improved margins, an increase in risk assets, 

continued low NPL ratios and an improving CIR. 



Zenith Bank of NGN 16.68, representing 45.7% upside 

on its current share price of NGN 11.45. After GTB, 

this is our second favourite pick in the sector. BUY. 

35




Y-o-Y Growth 55.4% 66.2% 99.1% 23.4% (16.5%) 31.1% 22.4% 


Y-o-Y Growth 74.0% 49.4% 110.9% 19.3% (22.9%) 44.9% 22.8% 


Y-o-Y Growth 70.0% 59.3% 100.5% 0.0% (0.4%) 33.7% 21.7% 


Y-o-Y Growth 72.4% 25.0% 68.6% 71.8% (13.7%) 36.5% 18.8% 


Y-o-Y Growth 65.4% 130.2% 136.3% (57.4%) 42.6% 28.1% 27.8% 


Y-o-Y Growth 59.4% 118.5% 176.3% (60.3%) 82.1% 49.4% 24.1% 



Y-o-Y Growth 71.7% 57.8% 131.2% (15.1%) 15.5% 21.8% (1.7%) 


Y-o-Y Growth 126.5% 60.9% 85.7% (62.2%) 26.8% 25.0% 23.0% 

Loans & Advances,Net 123 336 201 424 295 258 456 316 703 832 749 009 916 313 1 087 716 

Y-o-Y Growth 63.3% 46.6% 54.5% 54.2% 6.4% 22.3% 18.7% 

Deposits 233 413 392 864 639 242 1 191 752 1 173 917 1 344 121 1 654 936 1 889 440 

Y-o-Y Growth 68.3% 62.7% 86.4% (1.5%) 14.5% 23.1% 14.2% 

Borrowings 12 750 21 948 34 570 35 984 27 975 23 779 20 212 

Y-o-Y Growth NA 72.1% 57.5% 4.1% (22.3%) (15.0%) (15.0%) 


Y-o-Y Growth 148.2% 24.2% 197.6% (2.5%) 7.6% 10.9% 13.0% 



Y-o-Y Growth 40.7% 58.6% 91.7% (85.9%) 45.3% 49.8% 24.1% 


Y-o-Y Growth 57.1% (9.1%) 70.0% (73.5%) 88.9% 5.0% 24.1% 

Book Value Per Share (kobo) 716.5 1 558.8 1 260.0 2 570.0 1 344.9 1 158.0 1 283.8 1 450.2 

Y-o-Y Growth 117.6% (19.2%) 104.0% (47.7%) (13.9%) 10.9% 13.0% 

Tangible Book Value per share (kobo) 716.5 1 558.8 1 260.0 2 570.0 1 344.9 1 158.0 1 283.8 1 450.2 

Y-o-Y Growth 117.6% (19.2%) 104.0% (47.7%) (13.9%) 10.9% 13.0% 
















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