With more than 70% growth in profit after tax, Jaiz Bank Plc. (Ticker: JAIZBANK) grew its balance sheet as the Islamic lender’s compliance with shariah policy balance key risks following a shift into corporate transactions in the last 12-months.
Its unaudited financial statement for the first half of 2021 shows that total assets expanded to N244.386 billion from N233.596 billion at the beginning of the year. The growth in the bank’s statement of financial position was driven by its investment in Sukuk, Murabaha receivables, and investment in Ijara assets among others.
The Islamic lender’s shareholders fund declined to N17.027 billion from N17.845 billion after the bank paid N883.929 million dividend in the year. For Islam, sharia law refutes treating money as an asset that could generate interest but allow profit sharing for taking risks in productive activities.
As the Nigerian banking industry faces net interest margin decline, the sharia policy appears to be keeping Jaiz going with the bank’s earnings skyrocketing year on year.
However, a possible downside to the bank operation could be regulatory demand as Central Bank sets a 65% loan to deposit ratio target. But with less than N100 billion customers deposits as of the end of the first half, the risk to the income statement again appears low.
In the first half of the financial year 2020 report, Jaiz bank customers deposits printed at N74.580 billion before a record increase to N92.512 billion a year after.
Jaiz Bank would not give loans as it contradicts Islamic policy but could finance corporate and retail contracts on a profit-sharing basis. That could mean that deposit growth must be balanced with the number of contracts sponsored to match the prevailing loan to deposits policy.
According to their separate financial statement for the first half of the year, many Nigerian banks fall behind the CBN target due to a low appetite for lending. The net interest margin has fallen below the pre-pandemic period.
The interest rate on loans and advances to customers have relatively dropped as the CBN moves to drive growth in the Nigerian economy but banks’ net interest margin has suffered a messy meltdown, keeping lending appetite low.
For Jaiz Bank, a low-interest rate environment could work in its favour as the cost of obtaining funds declined across the industry.
However, MarketForces Africa analysts spotted that profit from financing investment paid to Mudarabah account holders (a profit-sharing and loss bearing contract where someone supplies funding) jumped to N2.096 billion from N1.730 billion a year ago.
In 12-month, Jaiz Bank Plc grows earnings per share by more than 70%, an uncommon feat in the Nigerian banking sector amidst Nigeria’s low-interest rate environment driven by the central bank monetary policy rate of 11.5%.
This has dried up yields in the fixed income market where Nigerian banks often play big as the government moves to reduce debt service costs burden and drive gross domestic product growth.
But Jaiz is not prone to the interest rate movement really as the Islamic banks earn from a share of profit on its contract financing activities. Sharia prohibits the payment or acceptance of interest charges or ‘riba’ on cash extended to customers or in trading activities.
‘Islam does not really regard money as an asset from which it permissible to earn returns’, Islamic Finance scholar told MarketForces Africa.
Traded at 56 kobo, the Islamic lender market valuation settled at N16.5 billion on the local bourse for about 29.5 billion shares outstanding.
Meanwhile, seven (7) shareholders account for 69.95% of the bank’s share outstanding as of the end of 2021 and this shareholding pattern appears to have been at the level in the last 12-month.
Other directors with marginal influence held 7.29% in addition while the bank maintained 22.76% as a free float in compliance with Nigerian Exchange’s requirement.
In its unaudited financial statement for the first half of 2021, Jaiz bank income from financed contracts increased to N7.175 billion, representing about a 58% jump from N4.550 billion in the first half of 2020.
The key driver of the increase was Murabaha profit from corporate deals (a sharia-compliant sales transaction used in trade and asset financing) which printed at N3.282 billion in the first six months in the year – about twice what the Islamic lender earned in the first half of 2020.
In the first six months in 2020, Jaiz Bank Murabaha from the corporate segment had settled at N1.637 billion. Murabaha from corporate accounted for 45% of the bank income from financed contracts, from about 36% record in the comparable period in 2020.
Meanwhile, the retail segment witnessed a slowdown in Murabaha related transactions. The bank asset financing in the segment returned N700 million as against N828 million delivered in the comparable period in 2020.
It appears the bank drive retail asset financing last year amidst the pandemic but a year after it has shifted focus to the corporate which accounts for a large chunk of the bank’s Murabaha profit. Again, Murabaha income from letter of credit financing jumped to about N150 million from N115 million last year.
Overall, total income from Murabaha transactions came saw more than 88% growth to N5.148 billion in the first half of 2021, from N2.732 billion 12-month ago.
Total profit from Ijara, a contract of sales of the right to use an asset for a period of time, transaction printed at N1.814 billion in the period. Expanded by 2%, at the end of the first half of 2020, Jaiz profit from the Ijara transaction had printed at N1.774 billion.
Jaiz bank recorded more than 45% growth in gross income in the period to N11.652 billion from N8.004 billion in the comparable period. The Islamic lender’s net income from financing and investing activities yielded N7.048 billion in the first half of 2021 from N5.364 billion.
The Islamic bank see total income expanded 42% to N8.861 billion, from N6.234 billion in the comparable period in 2020 as Nigeria’s economy rebounds. Its operating expenses thud printed higher, surged by more than 34% to N6.563 billion, from N4.887 billion in the comparable period amidst steep headline inflation rate and tightening regulatory demands.
However, Jaiz Bank delivered more than 70% earnings boost as profit after tax settled at N1.999 billion in the first half of the year, from N1.171 billion in the comparable period in 2020 yet with a positive outlook into the future – all things being equal.