Jaiz Bank Plc, Nigeria’s first and largest fully fledged interest-free or Islamic lender, has secured shareholder approval to raise N150 billion and restructure into a holding company to deliver on the short term growth strategy. and long term of the bank. The proposed structure will provide the bank with the opportunity to enter other related areas such as retirement, asset management, etc. Approval was obtained on August 16, 2022 during the Bank’s 10th Annual General Meeting in Abuja.
Interest-free Islamic banking is a model of partnership financing and risk and return sharing, regardless of faith/religion, tribe, etc. partners. Over the past 10 years, the bank has grown from 3 branches to over 45 branches nationwide; growing its balance sheet from N12 billion to over N300 billion as of June 30, 2022. Over these years, the Bank has consistently achieved remarkable results to reaffirm this continued growth trajectory as one of the most profitable from Nigeria.
In fiscal year 2021, for example, gross income increased by 31.76% to N25.84 billion from N19.61 billion in 2020. Similarly, total assets increased by 19.55% to N279.28 billion from N233.60 billion in 2020, while equity for the period increased by 36.20% to N24.31 billion from N17.85 billion naira in 2020.
In fiscal year 2022, the bank’s interest-free financial statements for the first half of 2022 show gross income increased by 23% to N14.335 billion from N11.652 billion recorded 12 months ago. . Supported by growth in other operating income, fees and commissions received, Jaiz Bank’s total income jumped 17.8% to N10.44 billion from N8.86 billion in the first half of 2021 On the back of strong revenue, the bank’s after-tax profit increased by 26.82% to N2.535 billion from N1.999 billion.
The Bank’s strong net income over the years is based on good income from financing contracts. In the first half of 2022, revenue from financing contracts amounted to N10.087 billion; 40.6% above the 7.175 billion naira reported in the comparable period last year. Funding contract revenue is derived from Murabaha transaction revenue, which accounted for 66.2% of funding contract revenue of N10.087 billion.
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The exit boosted earnings per share by 8.25%, to 7.34 kobo from 6.78 kobo in the first half of 2021 and further expanded the balance sheet; growing by 12.11% to 313.101 billion naira as of June 30, 2022, from 279.275 billion naira at the end of 2021. However, the shareholders fund slightly decreased to 24.235 billion naira due to a decrease in other reserves of 24.305 billion six months ago.
Reacting to higher earnings in the first half, equity investors took a higher position, which led to a revaluation of the share price. As a result, Jaiz Bank’s market valuation edged up by 20.27% to around N30.74 billion on Friday, August 19, 2022. The bank has a better year-to-date gain. It started the year with a share price of N0.56 and has since gained 58.9%, ranking it 16th on the NGX in terms of year-to-date performance.
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Strengths, risks and future prospects
Previously, in July 2022, Fitch Ratings affirmed Jaiz Bank Plc’s long-term issuer default (IDR) rating. at “B-” with a stable outlook and a viability rating (VR) at “b-”. The global rating firm also upgraded the Bank’s long-term national rating from “BBB+ (nga)” to “BBB (nga)”. The rating agency explained that Jaiz Bank’s IDRs are driven by its standalone creditworthiness, as expressed by its RV of “b-“, which reflects the concentration of the bank’s operations in Nigeria’s challenging operating environment. , a small but growing franchise. Likewise, the bank was named the world’s most improved Islamic bank by UK-based GIFA for the second consecutive year.
Fitch’s rating highlights Jaiz Bank’s high credit concentrations, aggressive funding and balance sheet growth that is expected to continue over the medium term, and weaknesses in funding quality. It also reflects healthy profitability, reasonable capitalization and comfortable liquidity cover.
Following its solid performance over the years, the bank is convinced and optimistic that it will continue to progress in the years to come. “The future looks bright; macroeconomic indices are expected to rise slightly as most economies rebounded, except for a few. “As far as banking is concerned, we will remain committed to providing our customers with better services in an efficient and pleasant manner. Our digital roadmap will be executed wisely to streamline our processes and increase employee productivity while maximizing shareholder returns,” said the president.
The bank’s expansion strategy comes at the right time, especially with further moves by rival banks to increase market share as rival TAJ Bank has shown interest in a national banking license, Lotus and Sterling Banks develop their interest-free banking offers.
More so, the bank’s market share remains small compared to the entire banking system, accounting for only 0.5% of banking system assets in 2021.
There is a need for expansion, but the method of financing is paramount. According to Fitch, “A deterioration in the long-term RV and IDR would result from an impaired loan ratio above 15% and aggressive growth leading to weakened profitability and a significant erosion of capital buffers to levels close to the bank’s 10% regulatory requirement” while “A long-term VR and IDR upgrade of Jaiz Bank would require a sovereign upgrade and improved operating environment conditions , a strengthening of the bank’s franchise, as indicated by increased market share, combined with moderating funding growth and impaired funding generation.”
The Bank offered a mix of equity and Sukuk issuance to fund its business expansion. It is relevant that a comparative cost-benefit analysis is carried out. The bank’s total equity as of June 30, 2022 is small compared to total assets, which is only 7.74%.