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
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Joseph Vieira, a former nominee of Banks has been replaced by Mr.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Chan-A-Sue who represented Hand-in-Hand has been replaced by Mr.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 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
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.
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
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.