Business Page   Citizen Bank Guyana Inc. 2005 - A Competitive Review

Sunday, January  15th, 2006




Business Page today looks at the 2005 Annual Report of Citizens Bank Guyana Inc. (the bank), a subsidiary of Banks DIH Limited (Banks), looking at the bank's position not only in a comparative context but also in relation to its parent company and as appropriate, to two other banks.

Despite what the bank's Chairman Mr. Clifford Reis described as a 'challenging year' due to 'the effects of the January floods, the high fuel and energy prices and a resurgence in criminal activities' it was another record earnings year resulting from growth in the investment, loan and lease portfolios.

The results will no doubt please shareholders who will be meeting this Tuesday January 17 to approve the financial statements and re-elect the directors among whom are four nominees of the 51% parent company Banks DIH Ltd. The parent will be holding its own 50th AGM four days later. The other significant shareholders are Continental Agencies Limited (16.4%), Hand-in-Hand Group (8.7%) and the Hand-in-Hand Pension Scheme (7.8%), which combined with the parent's holdings total 83.9%.

There have been two changes to the composition of the Board. The late Mr. Joseph Vieira, a former nominee of Banks has been replaced by Mr. Christopher Fernandes who is also on the Banks board while Mr. Paul A. Chan-A-Sue who represented Hand-in-Hand has been replaced by Mr. Wilfred 'Gus' Lee. Mr. Chan-A-Sue is of course part of the Ansa McAl Group which was embroiled in a very public and acrimonious spat with Banks and his position would clearly have become untenable and uncomfortable. It is usual in circumstances where directors are appointed during the year to fill casual vacancies for them to be confirmed at the next AGM but perhaps the by-laws of the bank allow otherwise since the Notice of the AGM excludes this from the agenda.

The bank's Managing Director Mr. Alan Parris is the only director who is also an executive in the bank. This is in stark contrast to the parent where 50% of the Board is made up of executive management including the combined position of Chairman/CEO which would hardly be considered desirable for good corporate governance. One would expect directors independent of management to ask tough questions of the management and for this to be translated into quality results for all shareholders. On the other hand when there is significant overlap between the Board and management, as is the case in Banks DIH, the robust examination cannot take place. It must be more than passing coincidence that this plays out in the results of the two entities with the bank outshining its parent where tradition still seems to play a larger role than performance. The corporate governance arrangements that would have served well and been acceptable fifty years ago have no place in the modern era. That is not to say that the bank's own arrangements could not be improved - a Code of Ethics would be a refreshing innovation and a formal or a Governance Committee desirable, even though the Board of seven may consider itself that committee.

While the bank's Statement of Corporate Governance asserts that its Board "...remains committed to making complete disclosure of all related party transactions", it would add to the transparency if the bank discloses the arrangements in place to prevent conflicts of interest and the terms under which transactions with related parties are conducted. While all the directors would be motivated by the interests they represent it is a form of collective and self-cancelling self-interest that works in the overall good.

Loans and advances balances with its related parties amount to $551 million, representing 9.3% of total loans and advances. Significant increases are reported in loans and advances outstanding from Other major shareholders ($129.4 million or 125%) and Directors, Senior Officers and Other Related Parties ($191.2 million or 186%). Given the significant increases over the year calculation of the effective interest rate is not particularly helpful.


Financial Performance:

Profit before tax has increased by 18.9% or $64.9 million, mainly attributed to the 28.6% or $54 million net increase in other income and the 109% decline in loan losses. Gains on foreign exchange trading increased by 77.4% or $46.5 Mn but Foreign Exchange gains surprisingly declined by $10Mn, the distinction between which may not be clear to readers, despite substantial increases in assets (33.3% or $1.6 billion) held in foreign currencies and a decline in foreign liabilities.

Profit margin, the percentage of net profit to turnover, has increased from 27% to 29% while NBIC, the market leader and DBL, which is seen as a comparator entity reported profit margins of 16% and 15% respectively.

Yield on loans and advances have decreased from 11.4% in 2004 to 10.7% in 2005, which is an indicator of the Bank's competitive interest rates. NBIC and DBL have reported yields of 14.3% and 13% respectively.

Contributing to the good performance is the quality of the bank's loan portfolio prompting the Managing Director to enthuse that 'credit quality keeps getting better' which is similar to the by-line of one of its competitors. Loan loss provision at the end of year was a mere 1.94 % of total loans and advances compared with 2.82% one year earlier and 15.89% in Demerara Bank and 1.1% in NBIC. Non-accrual loans as defined under the Financial Institutions Act were 4.8% compared with 23.4% in Demerara Bank and 3.6% in NBIC.

Yield on investments has also decreased from 8.2% in 2004 to 7.37% in 2005 while NBIC and DBL have reported yields of 7.2% and 6.5% respectively.

One notable issue with the bank is the declining share of its assets in Loans and Advances which now account for 37.4% of total assets compared with 46% five years ago. For Demerara Bank, Loans and Advances accounted for 35.8% of total assets and 57.5% five years ago. By contrast, the bank is holding an increasing proportion of its assets in foreign currency (40%), including foreign investments. While Demerara Bank discloses total investments held outside Guyana (25.2%), they do not indicate total assets and liabilities held in foreign currency.

Market share:

The Bank's market share of loans and advances has increased from 11.9% in 2004 to 14.5% in 2005. NBIC and DBL had 36.7% and 13.7% respectively. The Bank's market share of demand deposits has increased from 9% in 2004 to 10.7% in 2005. NBIC and DBL had 31.2% and 10.2% respectively. That the bank attracted some $4Bn. in additional deposits from the State sector would no doubt please shareholders and is a credit to its marketing team.

Reflecting the lack of liquidity and movement in share trading, the market value of the bank's shares last traded on August 30, 2004. Price/Earnings ratio (P/E ratio) has decreased by 0.55 points to 2.29 times as a result of the increase in profit after tax of $67 million. Additionally, the Bank falls short of NBIC and DBL whose P/E ratios are 7.59 times and 7.25 times respectively.

The Bank's average interest earned on loans and advances has fallen from 17.2% in 2000, 15.1% in 2001, 13.5% in 2002, 12.0% in 2003, 11.7% in 2004 to 11.% in 2005 which is very competitive and attractive and should be reflected in an increasing share of the lending market. That it is not lending much more is either a reflection of an extremely conservative lending policy or the unavailability of loanable propositions from the business community.


The bank is making an increasing contribution to the profits of the Banks DIH group moving from 16% in 2001 to 35% in 2005 on an equity base that is a fraction of its parent. It is perhaps the challenge of the manufacturing sector or the relative ease with which profits are earned in the financial sector in Guyana but whatever it is, the decision by the Guyanese businesses to acquire the formerly Jamaican-owned business has paid handsome dividends.

For reasons not immediately apparent the structure of the Annual Report differs from that of its parent in terms of the five year summary and can surely be improved. The glaring printing errors evident in varying degrees in three of the four annual reports referred to in this column are an embarrassment to the companies and one has to wonder whether the appeal of overseas printing is misplaced.

The public must be again concerned about the overall quality of accounting disclosures, and the role of auditors in financial statements which fall short of acceptable standards. With major changes in accounting rules operational for periods beginning on or after January 1, 2005, the Institute of Chartered Accountants needs to step up to the plate and discharge the professional and statutory duties which it owes to the public. This in no way exonerates the Regulators such as the Registrar of Companies, Bank of Guyana and the Securities Council from taking necessary action.