AGIB D77m less in meeting Central Bank’s capital requirement

The Arab Gambian Islamic Bank is in need of D77 million to increase its minimum capital requirement to D200 million in line with the regulation of the Central Bank of The Gambia (CBG). 

The shareholders fund of the bank has dropped to D123 million as a result of the managerial provisions of the bank, according to the board chairman’s report, which says it is “compelled to seek an additional D77 million to meet the D200 million minimum requirement”.

At the 2^nd Annual General Meeting of AGIB - since it was taken over by FinBank Plc, a Nigerian bank, - on Tuesday at the Coco Ocean Resort and Spa, the chairman of the Board of Directors of the bank, Adam Nuru, told shareholders of AGIB that the Board “would be seeking” its shareholders’ endorsement and permission to raise the additional equity to meet the minimum capital requirement”. 

The CBG in 2008 issued a directive for all the banks in the country to minimum capital requirement of 

shareholders fund to D150 million and D200 million by end of December 2010 and 2012 respectively.

AGIB has successfully met the first part of the increment after provision of US$2 million in June 2009 by the parent company – FinBank Plc - and it is auspicious of meeting the 2012 deadline on time.

“It is my belief, Insha Allah, that working together we would be able to meet this target come December 31^st 2012,” Chairman Nuru said.

Provision for non-performing loans increased

AGIB is grappling with bad debts more than ever before as their loans and advances portfolio continue to swell while increasing sums of monies given out as loans to customers continue to remain as bad debts, which are debts not likely to be paid, giving rise to banks losing millions of dalasis in profits.

“The cleanup of the bank’s book initiated during the period meant that the Bank increased its level of provisioning for non-performing loans from D10.4 million in 2010 to D26.5 million, an increase of over 154%,” Chairman Nuru said. “This inevitably affected the profit performance of the bank as the profit after tax figure moved from a positive of D1.2 million in 2010 to a negative of D7.34 million in 2011.  Consequent on this, all relevant profitability ratios declined when compared to the 2010 figures.”

Return on Assets (ROA) - an indicator of how profitable a company is relative to its total assets - decreased from 0.2% in 2010 to 6.9% in 2011.  Similarly, Return on Equity (ROE), which is the amount of net income returned as a percentage of shareholders fund, also decreased from positive 19% in 2010 to negative 39.3% in 2011.

However, the bank recorded improvements in a few operational areas as earnings from foreign exchange trading increased and deposits grew by D43 million in 2011, while revenue from banking services declined to D44.97 million in 2011 from D58.54 million in 2010.

This level of performance reflects the economic conditions as it affected the bank’s unique clientele base and determination to confine its operations within the tenets of Islam, Mr Nuru pointed out, while expressing optimism that the foundation laid in the year under review would provide a platform for improved and sustainable performance in 2011 and beyond.

Poor financial performance

AGIB’s financial performance in 2011 did not give a clean bill of health because despite the fact that there was significant increase in the total deposits of the bank from D502 in 2010 to D545 million by the end of 2011, its profitability records, according to the managing director of the bank, Dr Sirajo Salisu, showed an after tax loss of D47 million from a profit of 1.2 million in 2010.

He attributed this heavy loss to the increase in the bank’s level of provisioning for non-performing facilities the decision of which was taken to re-position the bank and “return to profitability immediately”. 

The bank’s total operating costs for the year amounted to D73.25 million, which is high relative to the size of the bank. Beginning 2012 financial year, efforts are already in place to significantly improve the cost to 

income ratio of the bank through several cost containment measures and acceleration of revenue generating capacity.

Unethical competition in the banking industry

The intense and fierce competition in The Gambia’s banking industry – 13 banks competing for less than 30% of 1.7 million people – has made it one of the highly competitive banking industries in the sub-region.   

This has forced banks in the country to devise any possible ways and means of getting customers in order to sustain their operations. 

According to Dr Salisu, competition in the Gambian banking industry continues to heighten and increasingly becoming “dirty and unethical by the day”.

“Increased competition has led to declining margins as the year 2011 remained to the advantage of the customers, where almost all services were rendered at the lowest cost if not free in the name of competition,” he said. “We shall continue to reasonably resist and reverse this trend in the course of our operations in the year 2012 to ensure that AGIB is returned to profitability.”

The AGIB MD said his bank has more opportunities for profit than majority of its competitors, and it is committed to fully explore these opportunities so as to yield a desired return to all stakeholders on a sustained basis beginning 31 December 2012.

He says the operations of his bank will continue to improve to ensure ethical and professional competition in the industry.

As part of its corporate social responsibility, AGIB continues to participate in various community-related activities, especially in health, small scale rural businesses and support to the physically challenged.