UNITY BANK: SLIDING INTO OBLIVION?

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From the conception to the consummation and up till now, Unity Bank   Plc has continued to exhibit every trait known with every corporate laggard.  This straggler takes the industry as given and seldom challenges the prevailing conventions. This bank, unfortunately, also show its inability to rewrite the rules as it is seemingly contended to just follow. Until recently and like a prisoner that loves his chains, the bank’s leadership had vigorously been protecting its ugly past rather than creating the future. This scenario has created an intimidating demon. While its ugly past still hunts its present, the same    is   dangerously    endangering    its future

 

Moreover,  Unity Bank, no doubt, has remained a going concern  carrying out the  banking routines  without any default  but    it is gradually sliding into oblivion judging by some  negative competitive data  like  market share, growth, cost,  innovation, margins  and productivity. All these are indeed, very unimpressive.

 

The problem with Unity bank may after all be management-made. During the tenure of the incumbent Chief Executive Officer, Tomi Somefun, the bank’s problems appear to be deteriorating, perhalps for the worsened macroeconomic forces and more intense competition issues. The question that remains a hard nut to crack is:   does Mrs. Tomi Somefun, the Chief Executive Officer have the capacity to pull this chestnut out of fire?

 

In terms of the fundamentals or figures, Unity bank evidently it is not yet out of the woods.  The bank’s financial health has been on roller coaster ride with visible dark spots here and there.

 

Among the litany of woes confronting   the bank are excruciating burden of cost and inability to create meaningful values for its investors. The bank’s cost to income worsened dangerously from 68 percent in 2014 to 93 percent in 2015 and then 93.6 percent in 2016; return on equity from 20 percent in 2014 to 6 percent in 2015 and 2.6 in 2016; return on asset from 2.6 percent in 2014    to 1.1 percent in 2015 and 0.5 percent in 2016   and non performing loan ratio from 17 percent in 2014 to 35 percent in 2015 and in 2016, it did not get better. The bottom-lines tumbled and the top lines just struggled to limp    

The net profit margin also went down dangerously. This represents negative real earnings in an economy high on inflation such as ours and ditto for the pre tax margin.

 

 

The above may be a tip of an iceberg. The bank’s   burgeoning level of bad and doubtful  debt expenses plus the level of debts gone awry  remain  its major  Achilles heel  and clog  in its wheels of  progress  Analysts  believe  successive top  executives have not  proved  to be in firm  control of the  core business of maturity transformation  which is the  live wire of a deposit money bank   That is, how the bank is able to manage short term and long term interest rates to yield good returns and ultimately affects its bottom line

 

 

A snapshot on the bank’s figures as at December 31, 2016 confirms   this and reveals that   the bank is not in good shape. Its  gross NPL of N361bn constitutes about 95% of the bank’s gross loan and 73% of its total assets while the bank’s shareholders’ fund of N83bn as at the period under review, constitute 23% of the gross NPLs. Unity Bank recorded the highest NPL  in  the industry;  its      NPL ratio moved from 77 per cent to 97 per cent, followed by FBN Holdings Plc, with a loan ratio increase, from 18.1 per cent in 2015 to 24.4 per cent in 2016 .This  has continued to send a signal that  the management at various times are not  in a firm control of the bank’s destiny

 

Also, another item on the bank’s balance sheet that threatens and creates high concern over the health and survival of the bank is the ballooning  negative retained earnings   that surged skyward on yearly basis .From N58.7b in 2013 ,N56.5b in 2014 and N117bin2015,  Unity bank negative earnings  skyrocketed   to N276 billion in 2016. Retained earnings is an accumulated net income. It is earnings that companies hold onto for reinvestment or as a safety net. Negative retained earnings often recorded on the balance sheet as accumulated deficit, means the company has more retained losses over time than accumulated net income. This is a problem for any business, though it sometimes occurs with aggressive growth companies.   Negative retained earnings for an established business are a sign that the company has not consistently earned income over time. Its accumulated net losses outweigh any net earnings for given periods. The longer this goes on and a company has a negative retained earnings balance, the more it’s a concern, because this means company leaders haven’t figured out how to improve profitability.

 

A deficit in retained earnings means the company essentially has nothing to invest in growth. This can lead to missed opportunities in emerging markets and inhibit production and development. Additionally, within retained earnings, the company doesn’t have extra funds to invest in advertising and promotion to attract customers and stimulate growth from existing offerings.

 

Each new quarter with a net loss means you eat away more at your cash reserves. If you can’t stem the tide and generate income at some point, you face bankruptcy or must attempt to sell the business. Negative retained earnings don’t bode well for attracting lenders for financing either.

 

With a negative balance in retained earnings, companies also typically can’t make dividend payments to shareholders or owners. This means they get no return on their investment. The only common exception is when companies are dissolving or liquidating and pays dividends out of cash balances. Otherwise, owners have to sit tight and hope for the best if the company doesn’t have reserves to pay out earning.

 

The problem with Unity bank may after all be management made. A comparative analysis of the successive leadership of the bank revealed none has made any unique  difference except in 2014 when Mr. Henry Semenitari   was at the driver’s  seat. Though the incumbent Chief Executive, Mrs Tomi Somefun is making frantic efforts but the bank appears to be sinking deeper into more financial mess.  A closer and detailed look at the books of the bank in the last five years confirmed this view.

 

The bank posted a negative profit after tax (PAT) of N22.582 billion in 2013 end compared to N6.180 billion reported in 2012 end; showing a loss of 465.4 percent.

Similarly, profit before tax (PBT) also went down from a negative of N6.456 billion in 2012 audited year end to a negative N33.639 billion in the review period of 2013; indicating a loss of 621.1 percent.

 

The irony is that in 2013 Nigeria’s economy looked to be on the ascendancy, creating a leeway for corporations to head north in their financial performance.  Unity Bank was unable to ride the waves. The bank was unable   to navigate the banking terrain to get the results because the management lacked the capacity to exploit the opportunities within the environment.

In 2013 also, the economy took firm strides forward as suggested by leading indicators; Gross Domestic Product (GDP) grew to 7.67 percent from 6.58 percent on the back of a steep return by frontier and emerging markets. In fact, Nigeria emerged among the best performing frontier market with improved ratings by the trio of S&P, Fitch and Moody’s.

 

However, there were   glitters of hope in 2014 financial year under the immediate former Chief Executive Officer Mr. Henry Semenitari   It was also the year the bank achieved the milestone . With the release of the full year result for 20 14, the red ink blotting the progress of  Unity Bank Plc was dabbed off, leaving only promises of a perpetual stay within the black lines of profitability. This leaves investors craning to take another look at the bank’s performance.

 

Key extracts of the audited report and accounts of the bank for the year ended December 31, 2014 confirmed this view.  The bank raised N39.22 billion new equity funds in 2014 through a combined rights issue of N19.22 billion and special placement of N20 billion. Shareholders’ funds closed in 2014 at N76.26 billion as against N28.21 billion in 2013. And the capital adequacy ratio of 21.6 percent registered in 2015 from its 2 per cent position in 2014 was the result of this initiative. The   gross earnings   trudged from N62.83 billion in 2013 to N77.07 billion in 2014

After taxes, net profit stood at N10.69 billion in 2014 compared with net loss after tax of N22.58 billion in 2013. Earnings per share thus turned positive with a modest 17.45 kobo in 2014 as against the loss per share of 58.74 kobo recorded the previous year. The balance sheet of the bank also firmed up substantially. Total assets rose to N413.31 billion in 2014 as against N403.63 billion in 2013. Total liabilities meanwhile dropped from N375.42 billion in 2013 to N337.04 billion in 2014.

 

But after the exit of Semenitari, the hope was eclipsed again as performance indicators were in stunted steps.  Two years after Somefun assumed the leadership of the bank, analysis on the bank’s figures indicated that the fortunes of the bank  have  continued to nosedive as the bottom-line indicated in 2016. The question raging   then was: why was Seminetari removed despite this landmark achievement?

 

Under the incumbent CEO, Mrs. Tomi Somefun who replaced Semenitari in office in August 2015,   the above positive developments tipped off again. Mounting costs and ballooning non performing loans run roughshod on the bottom lines even when the top lines were neither impressive. The bottom-line tumbled and the top line just struggled to limp. In 2015, Unity Bank, announced its audited financial result for the year ended December 31, 2015 and recorded gross earnings of N78.8 billion and a Profit  after Tax (PAT) of N4 .6 billion as against N77.07 billion and  N10.71 billion respectively  in 2014 . Aside the fact that this result was not impressive, it was also not sustainable either because profit after tax would have been worse if not for the benefit of tax credit in the 3015 financial year. This was a one off advantage enjoyed only in that year.
However, Somefun   attributed the unimpressive   performance of the bank to repositioning strategy, in which, its assets were critically stressed-tested, resulting in major impairment charges of N27 billion for 2015 as against N17 billion in 2014.

 

 

In 2016, the bank’s gross earnings for the review period grew by seven per cent to N84 billion from N78 billion reported in December 2015.   But the bank’s   profit before tax stood at N1.82 billion, representing a decline of 22 per cent from N2.34 billion recorded in the December 2015. This is attributed to higher impairment charge of N35 billion in 2016; up by eight per cent from N27 billion charged in December 2015 arising from impairment charges on loans.

However, the bank grew its deposit liabilities by 14 per cent from N231 billion recorded in December 2015 to N264 billion in December 2016

 

The 2017 financial performance is equally shrouded in anxiety. The firm performance is not a harbinger of a juicier outing in the 2017 financial year.  The nine months unaudited results   for    the 2017 financial year has been concluded and released.  However, from all indications, no one is optimistic that something more impressive would come out when finally the full year’s results are declared.

A review of the Bank’s performance for the 9 months period ending 30 September 2017 shows a modest growth. Across some key financial indices, one sees a growth by one per cent for gross earnings to N65.03 billion from N64.58 billion in the corresponding period of 2016, pre-tax profit of N2.72 billion and post-tax profit ofN2.45 billion

 

 

 

In the last few years, the top management appears to be coming to terms with realities on learning about the organization’s past. The bank is at work, sleeves rolled-up, digging a trench for bad and delinquent loans and entrenching good governance with full disclosure and this has affected bottom line.  In this environment, banks face a skeptical, if not cynical public. Rightly so this is evident in their proclivity to duck bright financial positions behind spruced up figures. Not so for Unity Bank. The bank is cutting a new image for itself, brandishing its true position. So the bank is now busy jettisoning underperforming assets and driving hard to raise asset productivity by getting its process pointing in the direction of customer satisfaction.

It   is equally addressing its   limited resources,   heavy    baggage of non-performing loans, managerial deficit and other inherited     defective genes from the parent firms. All these have continued to raise high hope around its financial heath

 

 

At various times a range of steps had been taken to address the above woes.   In its bid to clean up its loan book, Unity Bank Plc has taken far-reaching measures and initiatives for the resolution of its Non-Performing Loans (NPL).

The initiative has seen the Bank execute a Sales and Purchase Agreement (SPA) for its NPLs in a deal consummated recently with an independent private-led Assets Management Company.

Included in loans and advances are gross non-performing loans of N361 billion which have been considered for outright sale and management to an institutional asset management company.

The sale that culminated in the resolution of the NPLs was orchestrated in strategic landmark purchase consideration and framework that has promised a new lease of life to Unity Bank and provided significant returns to shareholders

 

Another far reaching step at taming the curse of success is the issue of share reconstruction. Unity Bank Plc took share reconstruction as a viable option to position for future stability and profitability with a guarantee of good return on investment and consolidate its gains to prepare for listing on the Nigerian Stock Exchange.    .

The management is planning to raise money to fund its businesses and grow the bank. When that money is raised, the bank will then be able to position itself, at last, for big ticket transactions. The bank     raised N39.22 billion new equity funds in 2014 through a combined rights issue of N19.22 billion and special placement of N20 billion Shareholders’ funds closed 2014 at N76.26 billion as against N28.21 billion in 2013.The  management also repositioned the bank for better opportunities.   Accordingly, agricultural sector remains a major strategic focus of the bank based on its historical strength while it would also focus on emerging middle market entrepreneurs to remain retail bank of choice

 

 

But the above efforts have not generated any impressive results yet. The wasted years that came from a lack of sensitivity to industry trends ,and the propensity to deny uncomfortable  truths have imperiled the  bank’s base business and now that the need to change is inescapable ,the cash ,people ,and intellectual energy needed to regenerate its core strategies have been largely dissipated .      Rather the bank’s fortunes have continued to nosedive.  . And from all indications, particularly with regard to scorecards, the bank’s   profit engine is under a serious threat.

 

 

The  above scenario may not be misplaced.   Naturally, at best,    laggards follow the path of least resistance and at worst the path of greatest familiarity. That exactly captures the style of the bank’s successive   management. With little or no growth over years, Unity Bank seems to have found itself in a very difficult position.   To support its burgeoning employment roster, diversification to other businesses, ballooning overheads and significant investment has become an uphill task. The bank has been boxed to a tight corner, and the options are either to go back to basics, make the company lean and mean   or   make the assets sweet. Return on capital employed shareholder value and revenue per employee became the primary arbiters of the management’s performance. And in its desperate bid to raise efficiency and productivity, Unity Bank has been launching some programmes   to improve   return on investment nets or capital employed. This may not be farfetched. Managers in such companies like Unity Bank know that raising net income is likely to be harder slog than cutting assets and head    count.  To grow net income, top management must have a point of view of about where the new opportunities lie, and they must be able to anticipate changing customer needs. This is in addition to having invested pre-emptively in building new competencies and so on.  But that is not so with the successive leaders or managers in Unity Bank.  Under intense pressure for a  quick  return on investment  improvement, these managers  were just reaching out for the lever  that would  bring quickest, surest improvement in ROI. In other words, they are just busy downsizing, de-cluttering, de-layering   and divesting

 

. But this may not spring any surprise particularly with   Tomi Somefun , the Managing Director of the bank  who is an accountant. This is true because for   the accountants,   the above route is the shortcut to asset productivity.

 

 

The  incumbent CEO does not seem to  have the foresight to create lasting values for this bank’s stakeholders . Although the fortunes of the bank deteriorated gravely in the three years since 2014, for   some optimists, the blame may not be shifted on Mrs Somefun alone. The argument is that she should be allowed more time to continue.   They believe that the   decline in pre-tax margin under Mrs Somefun represents a commitment to a fresh start towards a more competitive position. Analysts also argue that once the provisions are carried out, every naira earned would contribute towards gain for the bank. They also say the low return on investment is systemic or an economy wide phenomenon and is as a result of the general lull occasioned by the worldwide recession and is not likely  to have an adverse   effect on the bank going forward as the recession is expected to taper off by the bank’s next financial year.  Moreover, the   bank’s less impressive corporate heath is further worsened by the turbulent macroeconomic headwinds in the country.

 

 

Behind  the scene  and from the viewpoints of analysts, Tomi Somefun inherited some defective genes  from  the former leadership of the bank particularly limited resources and other inherited defective genes from the  nine parent firms from which  the bank emerged  after  the banking  consolidation put up by the  Central Bank of Nigeria  which   have  all stymied its  potentials

 

 

However, some analysts are blaming the fate of Unity Bank on its limited resources at the disposal of the management and a deficit from its foundation. The  bank balance sheet   and equity stunted growth also  continues to hinder  its   position in the  industry. Total assets rose to N413.31 billion in 2014 as against N403.63 billion in 2013.

Presently, its equity stands at N84 billion. This indeed, has restrained its growth potentials and sentenced to it a third tier club.

 

But the fate of this bank could equally be blamed on its    management at various time. There is a strong belief  that this bank has not been fortunate to get resourceful, innovative and creative leaders capable of turning the bank around.  This according to some industry observers has thrown the bank into a rogue’s gallery of wrongly managed companies.    Although the bank carried some negative baggage from its foundation, some analysts noted that this is not a tenable excuse. A weak assets level could indicate low capacity   in mopping up transactions, including an unimpressive position in maturity transformation. It can also mean that the bank has failed to apply   some elasticity to its wings in the form of more customer touch points, branches and Points of Sale devices.

 

For Unity bank, it is all of these and more. The managerial deficits which are palpable in the qualities of its successive leadership from inception are believed to be the cause of failures trailing the destiny of the bank.   Their views may not be misplaced. Starting resource positions are very poor predictor of future industry leadership. A firm can sit atop mountains of cash and command legions of talented people and still loses its pre-eminent position.  Likewise a firm can sometimes overcome enormous resource handicaps and successfully scale the height of industry leadership.

 

 

The above unsavory scenario or picture may not be farfetched. The fact remains that successive top managements were believed to have all along declined to unlearn excess baggage  from the organization’s past. Unity Bank, like  a  dinosaur threatened by cataclysmic climatic changes,    or  challenges  of a radically altered environment ushered in by banking consolidation and inclement macroeconomic environment, had been reluctant to jettison some of its past  baggage. And this has   endangered the fortunes of the bank. Put in another way, the failure of the management to re engineer the bank’s genetic coding to the changing structure and environment led it to be at the mercy of environmental upheaval. And only innovative and creative leadership can salvage Unity Bank from its laggard zone.  Since its inception, successive management teams have embarked principally on pockets of restructuring and re engineering. However, far from being tributes to senior management’s steely resolve or farsightedness, a large  restructuring and re engineering charge is simply   the penalty that a company must pay for not having anticipated the future.

However, while re engineering offers the hope of getting better and smaller and restructuring getting smaller faster than getting better,  it is possible to restructure and re engineer  without confronting the need to  regenerate the core strategies without being forced to rethink  the boundaries of its industry and without even imagining what customers might want for years. And this is without ever having to fundamentally redefine its served market. Financial experts and analysts believe that most executives pick up the knife and begin the work of restructuring when confronted with such problems as stagnant growth, declining margins and falling market share.  Mostly they engage this exercise to carve layers of corporate fat, jettison under performing business and raise asset productivity. The above initiatives, although have kept the bank a going concern, they have not radically changed the fortunes of the bank. Moreover, none of the   management teams in charge of its affairs has been able to   decisively regenerate the bank’s core strategies

 

Some industry watchers believe the only escape route is   to generate   adequate     intellectual energy  needed  to regenerate the bank’s core strategies   And they believe  only a leadership with ability to select those with capacity to build  for the future, imagine products, services, and  entire industry use less time on about how to position the bank in the existing competitive space but more time in creating fundamentally new competitive space  could upturn the fate of Unity Bank from a laggard to a leadership position.

 

According to them, for  the bank to go beyond the threshold, its incumbent management must      set   a new rule of competition, pursue  growth  and new business development with as much passion as it is pursuing operational  efficiency.  Moreover, the bank would have to   invest heavily in creating new intellectual capital

 

 

Analysts and industry observers believe that Banks which must succeed  under the prevailing turbulent macroeconomic headwinds in Nigeria, acquire the power of corporate kinetics, remain dynamic to make the move, respond to new customer demands fast enough and tag with staff who have big hearts to make powerful decisions  as situations demand, have strong knack for risk taking within the limits of corporate definition, seize new market opportunities immediately, innovate continuously and collaborate well.

 

Fradette and Michaud in their book, The power of Corporate Kinetics: How to be a kinetic company, the authors notes that top industry executives must redesign the structure of their companies,    bring  their strategic purpose to life, look for workers with brains and attitude, prepare workers to act kinetic, create the right conditions for innovation, use unexpected market opportunities to  their  benefit and satisfy unexpected customer demands. The question remains: can Somefun achieve this feat?

 

To accomplish the above tasks, deep knowledge to compete   for industry foresight and intellectual leadership,   foreshorten migration paths, market position, market share are highly imperative. This may not be misplaced. A deeper understanding  than competitors of the trends and  discontinuities  that could be used to transform industry boundaries and create competitive   space; battle to influence  the direction of industry development and market share within the fairly well defined parameters of value, costs ,price and  service. At the first stage of the battle, the competition is to conceive fundamentally new types of customer benefits or to conceive radically new ways of delivering existing customer benefits; the second is where the race is to accumulate necessary competencies, tests and prove out alternate product and service concepts. The third is focused on product line extension, efficiency improvement and what are usually marginal gains in product or service differentiation

 

 

However, unless the management of Unity Bank puts up a spirited, innovative and creative mood ready to regenerate its core strategies and unlearn its past, it may not be able to shed the toga of a laggard. At the current mood of restructuring and reengineering which the bank embarked upon, the only possible outcome is to make the bank getting smaller and possibly better.  This is because as important as these initiatives are,   they are not capable of turning   the bank an industry leader. The management rather should be able to fundamentally re-conceive the bank, regenerate its core strategies and reinvent the industry.  Some other analysts noted that the health situation of the Unity Bank is sliding dangerously, saying a manager with a stomach for emergency room surgery is needed but the type that can regenerate that bank’s core strategies is better.  In fact, a leader that can dramatically re-write the rules of engagement; the one who select which capabilities to build for future; an architect and not an engineer. These and more are allegedly lacking in the top management of this bank led by Mrs Tomi Somefun.

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