Jaiz Bank Plc makes history as the first non-interest financial institution to be listed on the Nigerian Stock Exchange (NSE). Over a month period, transaction data showed considerable investors’ appetite for the newly listed bank. In this report, Capital Market Editor, Taofik Salako examines the undercurrents for the positive perception of Jaiz Bank and the several possibilities it may hold out for the Nigerian and Sub-Saharan African banking public and investors.
Jaiz Bank Plc, Nigeria’s first non-interest commercial bank, recorded another milestone on February 9, 2017 as the first non-interest financial institution to be listed on the Nigerian Stock Exchange (NSE) with the admission of the entire issued share capital of the bank to the main board of the Exchange. The listing of the Jaiz Bank’s 29.46 billion ordinary shares of 50 kobo each at N1.25 per share lifted the market capitalisation of quoted companies by N36.83 billion. The listing was done by way of introduction, implying that Jaiz Bank’s shares would now be available initially through the secondary market. A total of 356,000 ordinary shares valued at N445, 000 were traded in six deals immediately after listing. Against the downtrend at the stock market, Jaiz Bank has stood out as a highly coveted stock, rallying on the bank of increasing demand to become one of the best-performing stocks, in terms of capital appreciation, at the Exchange.
While the All Share Index (ASI), the benchmark index for the Nigerian equities market, indicates negative average year-to-date return of -6.09 per cent, Jaiz Bank’s share price has appreciated by 12 per cent from its listing price of N1.25 to N1.40 per share as at the last trading session at the Exchange. Jaiz Bank’s year-to-date return of 12 per cent significantly surpassed average return of 0.74 per cent indicated by the NSE Banking Index, the benchmark index for the banking sector. The performance of Jaiz Bank shows the bank as a major contrarian stock in the depression at the equities market. Jaiz Bank within the one-month period had traded at a high of N1.47 per share.
Most pundits have alluded to the historic growth of the bank and the opportunities inherent in the new phase of expansion, marked by the listing, as attractions to investors. Chief executive officer, Nigerian Stock Exchange (NSE), Mr. Oscar Onyema, pointed out that with large un-banked populations as well as established middle class across the continent, which is home to numerous member nations of Organisation of Islamic Countries (OIC); Africa has been openly touted as a target Islamic finance market. According to the World Bank, the estimate of current size of the industry ranges from $1.88 Trillion to $2.1 Trillion with expectations of market size to be $3.4 Trillion by end of 2018.Managing director, Cowry Asset Management Limited, Mr. Johnson Chukwu, said Jaiz Bank appeared to be the opportunity that the investing public had been waiting for given the excitement that has greeted the bank.
The beginning
Jaiz Bank was created out of the former Jaiz International Plc which was set up in 2003 as a Special Purpose Vehicle (SPV) to establish Nigeria’s first full-fledged non-interest bank. The bank is owned by some 27,000 shareholders including the Islamic Development Bank (IDB). It had obtained a regional operating license to operate as a non-interest bank from the Central Bank of Nigeria (CBN) on November 11, 2011 and began full operations as the first non-interest bank in Nigeria on January 6, 2012 with three branches located in Federal Capital Territory, Abuja; Kaduna and Kano. In 2016, Jaiz Bank obtained the national banking license from the CBN and started to rapidly spread its network across the country. It has since grown its branch network by many folds including three branches in Lagos State, the commercial nerve centre of the country. The bank now has 30 branches spread across different regions within the country, with plans to open more before the end of this year. In 2016, Jaiz Bank’s business grew by an average of 30 per cent as against the average of between 15 to 20 per cent in other countries with Islamic banking institutions, underlining both the aggressive rollout by Jaiz Bank and the popular acceptance of its brand.
Jaiz Bank is bringing home to Nigeria and Sub-Saharan Africa (SSA) the global growth phenomenon that Islamic banking or Islamic finance has become both in its traditional Middle East region and in Europe, Asia and America. The global Islamic finance market is expected to top $3.4 trillion by 2018. “Islamic finance has grown rapidly over the past decade, and this banking segment has become systemically important across many regions,” Onyema said. Most analysts agreed with Onyema that Jaiz Bank, as a pioneer in Nigeria, has a large market of opportunities.
Fundamentals
Chukwu noted that one of the major attractions of Jaiz Bank is its evident fundamental strength as shown in sustained growth in profitability and balance sheet over the years. Both customers and investors are interested in the sustainability and safety of their funds. Jaiz Bank broke even in its third year of operations and has since remained profitable. Jaiz Bank in 2016 recorded a 33 percent increase in assets, which rose to N36 billion, up from N27 billion the previous year. Share capital rose by 50 percent from N10 billion in 2015 to N15 billion by 2016 year end. Consequently, its balance sheet rose 45 percent to N80 billion from N55 billion in corresponding period of 2015. The Dr Umar Abdul Mutallab-led board of directors of Jaiz Bank has approved that the bank should begin dividend payment to shareholders by the end of the year ended December 31, 2017. The board has also approved a dividend payment policy that will see the distribution of 50 per cent of net profit after tax to shareholders as dividend.
A five-year forecast by the bank showed that more than N7.9 billion could be distributed to investors as cash dividends over the period. The forecast for the period between 2017 and 2021 showed average annual gross income growth projection of more than 24 per cent while profit before tax and profit after tax are expected to grow at an average annual growth of about 73 per cent and 50 per cent. Gross income is expected to rise to N6.63 billion by the year ending December 31, 2017 and subsequently rise consecutively to N8.29 billion, N10.36 billion, N12.95 billion and N16.19 billion in 2018, 2019, 2020 and 2021 respectively. Profit before tax is projected to grow to N1.92 billion in 2017 and consecutively to N2.87 billion, N4.13 billion, N5.78 billion and N7.94 billion in 2018, 2019, 2020 and 2021 respectively. Net profit after tax, out of which 50 per cent will be distributed to shareholders, is projected to jump to N1.34 billion in 2017 and rise further to N2.01 billion in 2018. By 2019, profit after tax is expected to top N2.9 billion and subsequently to N4.05 billion and N5.56 billion in 2020 and 2021 respectively.
Managing Director, Jaiz Bank Plc, Mr. Hassan Usman, said Jaiz Bank, as Nigeria’s only fully-fledged Islamic bank, is committed to showing that the non-interest banking model can be implemented profitably in the country.
Citing the historical performance of the bank, Usman noted that in a period of economic recession, where several companies are recording losses in billions of naira, the bank’s management team has been able to achieve more than 30 per cent growth in some of the bank’s indices which include its share capital and assets. “Going by the growth trajectory which averaged 30 per cent per annum, Jaiz Bank’s prospects are bright. The projection for the next five years indicates a gross revenue of N16 billion by 2021and profit before tax of N7.9 billion,” Usman said.
Chairman, Jaiz Bank Plc, Dr. Umar Abdul Mutallab said the listing of the bank on the Exchange would open up opportunities to all Nigerians to be part of the ownership while providing liquidity to existing shareholders. He explained that while Jaiz Bank is based on the principles of Islamic finance, the bank is an equal-opportunity institution that provides services to all customers and employment to all categories of people irrespective of their beliefs, regions and ethnicity.
He pointed out that the shareholders of the bank also cut across all segments of the country and beyond noting that the “Jaiz Bank is for all Nigerians” but the only difference is that the bank only finances ethical projects.
Unique model
The sustainability and profitability of Jaiz Bank lies in the unique business-oriented approach of Islamic finance and the uniqueness of Jaiz Bank’s management approach. Islamic banking or non-interest banking engages in financial intermediation by focusing on the success of the entrepreneur and profitability of the business rather than the conventional banking approach of arm’s length financing. While non-interest banks like Jaiz Bank offer almost all the services by the conventional banks, the operations of non-interest banks are premised on ethical principles of fairness, transparency and common good. As such, Islamic banking does not receive or give interest and it does not finance anything considered by Sharia as harmful to humanity including alcohol, tobacco, gambling, harmful drugs and anything that leads to immorality among others. Islamic banking also eschews speculative and uncertain financing. Without interest, non-interest banks make profit through sales, partnership and leasing. Usman said Jaiz Bank has developed a bouquet of products and services that has increasingly endeared it to Nigerian businesses and depositors.
According to him, the bank had focused on building well-diversified investment portfolios across several sectors of the economy, including general commerce, real estate and construction, agriculture, education, manufacturing, information and telecommunication and oil and gas.
Besides, Usman noted that the secret for the above-peer growth rate of Jaiz Bank lies in the uniqueness of its business management approach. “We have set out on a path of reinvention of the banking landscape in the country. This journey over the next few years will focus on changing how banks should operate to better improve the lots of the community, while delivering on their commitments to the shareholders. We are focused on building on our culture of ethics and taking the necessary decisions to align our perspective with client expectations,” Usman said in a broad outline of the people-centred approach of the bank.
According to him, while several other Islamic banks, especially in the Gulf region, rely on the deposits from governments or public sector, Jaiz Bank built its model around individuals and firms in the private sector. “To get to these individuals and firms, the bank paid adequate attention to the quality of its personnel and infrastructure,” Usman noted. According to him, Jaiz Bank’s processes and products are thus primarily structured to address the needs of individuals and firms regardless of their religious and ethnic affiliations.”So far, wherever we are, we have all kinds of customers. It is a variant of financing but it is the same in terms of the utility that we create. The difference is in the way we intervene. So, we try to let the customers know. Also, because they see some of our staffs who are non-Muslims they appreciate that the services are not limited to Muslims,” Usman said on the national acceptance of the bank’s brand. Jaiz Bank is also determined to establish a strong presence in the foreign exchange market without losing its focus as an Islamic bank, a possible goldmine for the bank given the dominance of a large segment of the foreign exchange market by groups receptive to ideas of Islamic banking. Usman said the bank’s foreign exchange services will also enable it to attend to the needs of growing clientele who require MoneyGram, Western Union as well as other legitimate international money transfer services.
“As a pioneer non-interest bank, we are committed to the economic development of Nigeria and its people. While Islamic banking is at the core of how we render services, we shall offer all things to all people. Our array of offering underpins our resolve to be a competitive brand that is in tune with the global best practices,” Abdul Mutallab said.
Corporate governance
Jaiz Bank’s success is built on strong corporate governance, drawing on some of Nigeria’s most successful professionals as shareholders, directors, and management. President, Professional Shareholders Association of Nigeria (PSAN), Mr. Boniface Okezie, described Abdul Mutallab as “life chairman”, evoking his several years as chairman of boards of directors of many companies. Under his chairmanship, First Bank of Nigeria successfully transited several banking consolidations to remain as the most formidable first generation bank. A former Minister, Abdul Mutallab, is widely reputed in the private and public sectors as a man with golden touch. A successful banker himself, Abdul Mutallab was a former executive vice chairman and managing director of United Bank for Africa (UBA) Plc, Nigeria’s third largest bank Abdul Mutallab is leading a board of directors that includes Dr. Aminu Al Hassan Dantata, Dr. Muhammadu Indimi, Dr. Musbahu Mohammad Bashir, Mallam Falalu Bello, Dr. Umaru Kwairanga, a monarch Bello Mohammed Sanni, Prof Tajudeen Adebiyi, Prof Monzer Kahf, Alhaji Mukhtar Sani Hanga, Dr. Mohammed Ali Chatti and Mallam Nafiu Baba-Ahmed, all outstanding men in their various fields of endeavours and the national polity generally.
Besides, Usman’s enviable professional standing has also played key role in the success of the bank. In addition to being a first class graduate, he is an associate member of ICAN; a product of Maastricht School and Oxford University Advanced Management Programme. Mr. Mahe Abubakar, the deputy managing director of Jaiz Bank, was a former deputy managing director at Zenith Bank, Nigeria’s second most capitalised bank. The same thread of excellence runs through the top management to the entire staff selection of the bank, enabling the bank to get it right at first attempt on most fronts.
A balanced structure of long-term and committed shareholders has also helped to position Jaiz Bank for steady success. While the listing of its shares at the Exchange would surely widen its nearly 30,000 shareholders’ base, major shareholders still include the Islamic Development Bank (IDB) and Alhaji Aliko Dangote, Africa’s richest man. Altogether with other board members, the major shareholders and visionaries of the bank hold more than 65 per cent of the shareholdings.
“Jaiz Bank has gone through a rigorous process to meet the listing standards of the NSE. With this listing, the company is showing its commitment to living a culture of strong corporate governance, excellent corporate citizenship and efficient services to its clients. As a listed company, we also believe that Jaiz Bank intends to provide increased returns to its shareholders,” Onyema said about the Exchange’s review of the corporate governance of the bank.
Companies that are listed on the main board of the Exchange, where Jaiz Bank is listed, are subjected to stringent scrutiny before listing and are subsequently required to meet equally stringent post-listing requirements.
