Half Year 2014 Results Presentation to Investors and Analysts 1
DISCLAIMER This presentation is based on Skye Bank PLC s ( Skye Bank or the Group or the Bank ) unaudited IFRS results for the period under review. All results are prepared using IFRS. Skye Bank has obtained some information from sources it believes to be credible. Although the Bank has taken all reasonable care to ensure that all information herein is accurate and correct, it makes no representation or warranty, express or implied, as to the accuracy, correctness or completeness of the information. In addition, some of the information in this presentation may be condensed or incomplete, and this presentation may not contain all material information in respect of Skye Bank. This presentation contains forward-looking statements which reflect management's expectations regarding the Group s future growth, results of operations, performance, business prospects and opportunities. Wherever possible, words such as anticipate, believe, expects, intend, estimate, project, target, risks, goals and similar terms and phrases have been used to identify the forward-looking statements. These statements reflect management's current beliefs and are based on information currently available to the Bank's management. Certain material factors or assumptions have been applied in drawing the conclusions contained in the forward-looking statements. These factors or assumptions are subject to inherent risks and uncertainties surrounding future expectations generally. Skye Bank cautions readers that a number of factors could cause actual results, performance or achievements to differ materially from the results discussed or implied in the forward-looking statements. These factors should be considered carefully and undue reliance should not be placed on the forward-looking statements. For additional information with respect to certain of these risks or factors, reference should be made to the Bank's continuous disclosure materials filed from time to time with the Nigerian banking regulatory authorities. The Bank disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. 2
OUTLINE Skye Bank Overview Operating Environment Financial Highlights Risk Management Key Initiatives 3
OVERVIEW OF SKYE BANK Background Skye Bank was incorporated as Prudent Merchant Bank Limited in December 1989 and commenced operations in May 1990 as a merchant bank Its name was changed to Prudent Bank Limited in 2000 following an approval by the Central Bank of Nigeria ( CBN ) for the conversion of the bank to a commercial bank and commenced operations as a commercial bank in 2001 Countries with Banking Presence Total Assets Key Highlights Nigeria (259), Sierra Leone (2), The Gambia (2) and Guinea (2) N1,131million Further to the consolidation reforms in the banking sector, Prudent Bank Plc merged with Eko International Bank Plc, Bond Bank Plc, Reliance Bank Limited and Cooperative Bank Plc to form Skye Bank Plc in 2006 The Bank is one of the 8 banks designated as Systemically Important Banks (SIBs) by the CBN Skye Bank has 259 branches in Nigeria and foreign subsidiaries in Sierra Leone, Guinea and The Gambia Ratings GCR (A-), Agusto & Co (BBB-), S&P (BBB) No of Accounts 2.4 million ATMs / POS 604 / 8,512 Branch Network Total Equity N115.9 billion Staff Head Count 2,588 South West South East Market Capitalisation N42.3billion Branches 154 Branches 22 Auditors PricewaterhouseCoopers South South North West Branches 32 Branches 16 North East North Central Branches 10 Branches 25 4
SKYE BANK PLATFORM AT A GLANCE Leading Tier II Bank Skye Bank is a Tier II bank in Nigeria Over a trillion Naira in total assets Designated by the Central Bank of Nigeria ( CBN ) as one of the Systematically Important Banks Diversified business model including corporate, commercial and retail banking, with increasing focus on the retail banking segment Wide Geographic Presence & Strong Distribution Platform 259 Branches, 604 ATMs and 8,512 PoS terminals across the country Strong revenue collection and electronic payment channels for both public and private sectors Strong presence in the core markets of Lagos and the South West region of Nigeria Recent Massive Upgrade of IT Systems The first bank in Africa to move its core banking systems to Oracle Flexcube 12.0 Data centre remodelled now robust and scalable Strengthened network and network security infrastructure Fully automated loan creation, scoring and rating system New Management Team With Clear Strategy New GMD/CEO and DMD appointed effective, August 1, 2014 Revitalised strategy to bolster commercial and retail banking franchise and expand client base 5
HISTORY OF SKYE BANK 1989 Established and incorporated as Prudent Bank 1990 Prudent Bank issued a merchant banking licence 2000 Commenced commercial banking 2001 Adopted the Universal Banking model 2005 Listed on the Nigerian Stock Exchange 2006 Skye Bank was formed following the merger of 5 banks 2008 Shored up capital base to NGN 95bn from NGN 29bn 2008 Commenced banking operations in Sierra Leone 2009 Commenced banking operations in Gambia 2011 Adopted International Financial Reporting Standards (IFRS) 2010 Commenced banking operations in Guinea Raised NGN 11.4bn in special equity placement on NSE 2013 Designated a Systematically Important Bank by the CBN 2012 Divested from all non-core banking subsidiaries 2014 Appointed New GMD / CEO & DMD 6
OUTLINE Skye Bank Overview Operating Environment Financial Highlights Risk Management Key Initiatives 7
NGN, Billion DOMESTIC ECONOMY Sequel to the recent rebasing of the nation s GDP to become the largest in Africa, Nigeria s GDP continues to grow at an annual rate of 6.21%, which is lower than the 6.8% recorded growth in December 2013. The growth is driven by the service sector while the oil sector continues to contract Core inflation continues to trail along a single digit and currently stands at 8.2% caused largely by rising food prices Naira traded flat at the end of June 2014 depreciating by 0.03% at the interbank market to close at N161/$. The currency traded at N155/$ and N167/$ in the official and parallel market respectively on the backdrop of CBN intervention 10% 5% 0% -5% Nigeria Real GDP Growth 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 GDP Oil GDP The external reserve increased marginally to $37.48 billion at the end of June 2014. This reduced by 22% YoY against the $48.15 billion balance in June 2013. Due to certain inefficiencies, Nigeria currently produces 2.3million from its estimated 2.5million barrels of oil per day. The recent global increase in oil prices however is making up for the income shortage and this is evident in the marginal foreign reserve accretion 4,000 3,000 2,000 1,000 0 Federation Account Gross Revenue (NGN, Bn) 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 Sources: CBN, NBS, NNPC Non-Oil Revenue Oil Revenue 8
CURRENT BANKING LANDSCAPE The Central Bank of Nigeria (CBN) had a change in its leadership with the assumption to office by a new governor on June 3, 2014. CBN issued new guidelines on the operations of BDCs and Micro Finance institutions. On July 1, 2014 the cash-lite policy of the CBN was extended to all the states of the Federation. Regulatory Updates CBN released an exposure draft and operational guidelines for financial institutions running the Holding Company structure. CBN abolished charges on deposits above Five Hundred Thousand Naira. The CBN Governor highlighted certain policy agenda in his inaugural Press Conference held on June 5, 2014 which includes: exchange rate and financial system stability, introduction of sector-specific bank examiners, development finance focus on power, agriculture, MSME, oil and gas, health etc., establishment of Secured Transaction and National Collateral Registry. With strengthened industry reforms and above-average returns, banking sector stocks are still expected to be dominant in the Nigerian Stock Exchange (NSE) in spite of its recent price fluctuations. Outlook Given the increasing gap between the parallel and the official market, the naira might continue to experience a moderate depreciation and put further pressure on the FX market. As political activities heighten towards the coming elections, there may be increased dollarization of the currency. This might pose some risks to macro economic stability. The banking industry is expected to remain stable given the various sector reforms and the commitment of regulators and operators to enhance disclosures and professionalism. 9
OUTLINE Skye Bank Overview Operating Environment Financial Highlights Risk Management Key Initiatives 10
FINANCIAL HIGHLIGHTS N billions unless otherwise indicated 1H 14 1H 13 FY 13 FY 12 Revenue Drivers Gross earnings Non interest revenue Loan book (net) Customer deposits Loan to deposit ratio Net interest margin N63.9 N12.6 N578.9 N818.3 72.4% 6.6% N71.2 N13.8 N571.1 N795.7 75.4% 6.4% N127.3 N22.0 N549.9 N823.3 69.6% 6.7% N127.7 N25.3 N540.4 N790.1 68.4% 5.5% Earnings & Profitability Profit before tax Profit after tax Earnings per share Return on average assets Return on average equity N7.3 N5.8 N0.44 1.0% 9.8% N10.6 N8.4 N0.64 1.6% 16.3% N17.1 N16.0 N1.21 1.5% 14.1% N16.5 N12.6 N0.95 1.3% 12.2% Operational Efficiency Operating expense Cost to income ratio Cost of funds N30.8 71.6% 3.9% N30.9 70.3% 5.9% N51.4 63.5% 4.7% N40.2 57.6% 6.8% Asset Quality NPLs NPL ratio Coverage ratio Cost of risk N14.0 2.4% 98.0% 1.7% N26.7 4.4% 168.0% 0.9% N18.0 3.1% 127.7% 2.2% N28.1 4.9% 93.9% 2.3% Capital Strength Capital adequacy ratio Tier I ratio Tier II ratio 18.5% 14.7% 3.8% 16.3% 13.0% 3.3% 20.2% 17.2% 3.0% 16.9% 14.6% 2.3% 11
GROUP BALANCE SHEET OVERVIEW 1H 14 1H 13 % Change YoY FY13 Assets: Cash and Balances with CBN 155,467 130,014 16% 145,056 Due from other Financial Inst. 139,022 91,998 34% 149,323 Loans and advances 578,945 571,058 1% 549,858 Investment Securities 198,122 191,722 3% 177,347 Property, plant and Equipment 31,526 30,103 5% 29,523 Others 28,404 78,009-175% 65,529 Total Assets 1,131,486 1,092,904 3% 1,116,636 Equities and Liabilities: Deposits 818,376 795,667 3% 823,323 Due to other Financial Inst. 287 20,555-7062% 143 Borrowings 128,673 96,408 25% 136,685 Other Liabilities 68,213 80,170-18% 36,068 Equity 115,937 100,104 14% 120,415 Total Equities and Liabilities 1,131,486 1,092,904 3% 1,116,636 Figures in N'Mn, Dec IFRS 12
REVENUE GENERATION 2.7 22.6 Operating Income (NGN, Bn) 2.3 17.2 Operating Income (% Mix) 4% 3% 2% 3% 32% 21% 33% 30% 1.0 1.1 44.5 61.6 13.5 11.5 26.8 25.5 64% 76% 65% 67% FY12 FY13 1H13 IH14 FY12 FY13 1H13 IH14 Others Net Commission & Fee Income Net Interest Income Others Net Commission & Fee Income Net Interest Income Gross Earnings (NGN, Bn) Gross Earnings (% Mix) 26.1 22.0 21% 17% 21% 20% 101.0 105.3 14.6 12.6 79% 83% 79% 80% 56.5 51.2 FY12 FY13 1H13 1H14 FY12 FY13 1H13 1H14 Interest Income Non Interest Income Interest Income Non Interest Income 13
MARGINS Net Interest Income (NGN, Bn) 61.70 51.10 26.8 25.50 6.4% Net Interest Margin 7.8% 7.4% 6.8% 6.6% Comments Cost of funds reduced significantly owing to continuous focus on mobilizing low-cost deposits. 16.20 1H13 9M13 FY13 1Q14 1H14 1H13 9M13 FY13 1Q14 1H14 Cost of Funds Yields on Assets 5.9% 10.0% 11.5% 5.2% 4.7% 4.8% 6.2% 3.1% 5.6% 3.9% 1H13 9M13 FY13 1Q14 1H14 1H13 9M13 FY13 1Q14 1H14 14
FUNDING AND DEPOSIT Customer Deposits (NGN, Bn) 823.3 818.3 795.7 733.9 726.8 Deposit % Mix 10% 11% 11% 12% 11% 15% 15% 14% 15% 15% 35% 32% 31% 27% 31% 39% 42% 45% 46% 43% Comments Focus on demand and savings deposits will continue to reflect on the mix and overall efficiency A QnQ growth of 10% to bring total deposits to N818.3bn 1H13 9M13 FY13 1Q14 1H14 1H13 9M13 2013 1Q14 1H14 Demand Time Domicilary Savings Funding Structure 1H14 Deposits by Business Segments 1H14 10% 2% 6% Deposits Borrowings 14% Corporate 10% Equity 35% Commercial Tier II Capital SME/Retail Other Liabilities 72% 51% 15
OPERATING EXPENSES Operating Expenses (NGN, Bn) Cost-to-Income Ratio Comment 40.21 51.44 30.88 30.88 70.3% 71.1% 63.5% 74.6% 71.6% Improved CIR QoQ on the back drop of cost containment initiatives which is also reflected in the stable operating expenses FY12 FY13 IH13 1H14 1H13 9M13 FY13 1Q14 1H14 Operating Expense % Mix Breakdown of Other Costs 1H13 IH14 60% 68% 71% 74% 11% 5% 12% 10% 5% 11% 72% 74% 40% 32% 29% 26% FY12 FY13 1H13 1H14 Staff Cost Other Costs Admin & General AMCON NDIC Depreciation Admin & General AMCON NDIC Depreciation 16
EARNINGS AND PROFITABILITY PBT Trend (NGN, Bn) PAT Trend (NGN, Bn) 16.5 17.1 12.6 16.0 10.5 7.3 8.4 5.8 FY12 FY13 1H13 1H14 FY12 FY13 1H13 1H14 ROaE Trend ROaA Trend 12.2% 14.1% 16.30% 9.80% 1.3% 1.5% 1.60% 1.00% FY12 FY13 1H13 1H14 FY12 FY13 1H13 1H14 17
LOAN GROWTH AND DIVERSIFICATION 605 600 595 590 585 580 575 570 565 560 555 75.4% Gross Loans 78.8% 69.6% 79.3% 72.4% 600 572 573 592 593 80.0% 78.0% 76.0% 74.0% 72.0% 70.0% 68.0% 66.0% Loan Portfolio by Sector 10% 4% 5% 4% 3%2%5% 8% 3% 8% 3% 21% 9% 9% 2% 5% Oil & Gas Upstream General Commerce Power Retail Building & Construction Education & Educational Services Real Estate Maritime Oil & Gas Engineering Ser Manufacturing Hospitality Public Sector Comments A diversified portfolio mix which reflects the various sectors is maintained Moderate Loan volume with a sustainable LDR 1H13 9M13 FY13 1Q14 1H14 Gross Loans LDR Telecommunication Oil & Gas Downstream Financial Services Loan Portfolio By Business Segment FY13 Loan Portfolio By Business Segment 1H14 15% 23% Corporate Corporate 45% N572.8Bn Commercial N592.7Bn 53% Commercial SME/Retail 32% SME/Retail 32% 18
5.0% 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 140.0% 120.0% 100.0% 80.0% 60.0% 40.0% 20.0% 0.0% ASSET QUALITY Asset Quality Metrics Comments 28.6 26.6 26.9 24.8 22.9 24.1 18.0 18.9 12.6 14.013.8 4.6 5.0 2.5 2.5 1H13 9M13 FY13 1Q14 1H14 NPLs Provisions Impairment Charge 4. 4.3% 3.1% 3.2% 2.2% 0.9% 1.1% 2.4% 1.7% 1.7% 1H13 9M13 FY13 1Q14 1H14 NPL Ratio Cost of Risk Coverage Ratio NPL remains below the regulatory threshold of 5% as a result of improved lending practices. Strengthened Enterprise-Wide Risk Management framework with investment in human and material resources in all areas of risk. NPLs By Sector FY13 NPL By Sector - 1H14 6% 12% 6% 12% N18.0Bn 22% 4% 31% 7% Maritime Manufacturing General Commerce Oil & Gas Retail Transportation Aviation Others 25.13% 7.38% 2.44% 8.90% 3.26% N14.03Bn 30.35% 19.11% 3.45% General Commerce Manufacturing Oil & Gas Downstream Others Real Estate Building & Construction Retail Transportation Deliberate policy of high impairment charge to ensure even measurement through the year. 19
CAPITAL ADEQUACY & LIQUIDITY Risk Weighted Assets and CAR (NGN, Bn) 20.2% Components of Capital (NGN, Bn) 18.5% 16.3 15.5 30.6 16.9% 106.1 120.0 115.9 724.3 699.9 783.1 FY12 FY13 1H14 RWA CAR FY12 FY13 1H14 Tier I Tier II Components of Liquid Assets Liquidity Ratio FY13 1H14 36.6% 39.8% 41.1% 19% 19% 23% 10% 31.5% 32.0% N281.6Bn N291.9Bn 27% Cash & Others T.bills 1H13 9M13 FY13 1Q14 1H14 27% 35% 40% Bonds Placements 20
OUTLINE Skye Bank Overview Operating Environment Financial Highlights Risk Management Key Initiatives 21
RISK MANAGEMENT Adequate Provisioning and Impairment Charge Improved Loan Approval Process Strengthened Risk Management Governance Structure Robust Internal Rating Model Intensified Efforts on Recovery 22
OUTLINE Skye Bank Overview Operating Environment Financial Highlights Risk Management Key Initiatives 23
KEY INITIATIVES Consolidating on a Group-wide IT transformation project, with focus on process automation Completed the upgrade of the Bank s software Flexcube from version 6.2 to version 12.0 in April 2014 Fully automated loan creation, scoring and rating system Branch revamping to improve customer experience Selective branch expansion into specific areas that support our low-cost deposit strategy Deploying stringent control measures to effectively manage operational cost Re-engineered risk management processes to be more proactive, efficient and effective, whilst supporting transactions Centralised all branch back-office functions expected to increase operating efficiency Realigning funding structure (with the introduction of structured medium to long term debt) to improve asset / liability matching, net interest margin and profitability Adopted a holistic approach towards performance management changed KPIs of both business development and support staff to raise overall productivity index 24
COMMERCIAL BANKING OPPORTUNITIES Agriculture Automobile Sector Reforms Services Manufacturing Building & Construction General Commerce 25
GUIDANCE & FORECAST Performance Metrics FY 2014 Cost of Funds 4.5% Net Interest Margin (NIM) 8% Capital Adequacy Ratio (CAR) 20% Returns on Average Equity (RoAE) 17% Returns on Average Assets (RoAA) 1.9% Cost to Income Ratio 65% Loan Growth 15% Deposit Growth 20% Cost of Risk 2% NPL Ratio <5% 26
THANK YOU 27