Republic banks on acquisitions

2003 was a growth year for Republic Bank Limited (RBL). The Group spent close to TT$683m in acquisitons. It forked out TT$88m for the TT$50 million net assets of the Guyana National Cooperative Bank (GNCB) through its Guyanese subsidiary National Bank of Industry and Commerce (NBIC). The bank also took over  65.13% of the shares of Barbados National Bank (BNB) from the Government of Barbados.  For net assets of TT$304 million, Republic paid a total of TT$594 million on this deal. These two acquisitions will provide annual tax savings of approximately TT$21M for the next 15 years as  Goodwill of TT$328m will be depreciated on a straight line basis over that time.  Goodwill is the amount paid in excess over the net asset value on the acquisition. On the GNCB transaction RBL attained goodwill of TT$38.5m while on the BNB, goodwill of TT$289.5M was realised.

In Guyana, Republic through its subsidiary NBIC, can move to consolidate its position as a market leader.  Market share has swollen to approximately 45% and is well supported by additional branches and GNCB TT$508m asset base  NBIC’s first task is to rationalise the existing structures and systems to optimise efficiency and contribute to maintenance of low operating costs. For the Republic Group, this is an important move. The Bank acquired over 90,000 clients at a price of TT$88M or close to TT$977 per customer. From any angle this is an excellent price to pay for access to a new customer. “The consistent growth in BNB Group can be attributed to the success in managing our three key focus areas: working to maintain excellence in service, continuous improvement in productivity and in risk management. This focused approach has greatly assisted us in achieving a consistently good performance in past years and an excellent performance in 2002, when considering the difficult economic conditions under which we operated. In 2002 our net profit increased by 40 percent, the highest among commercial banks operating in Barbados” said Managing Director and Chief Executive Louis Greenidge.

Local pundits have claimed that the Goodwill on this transaction is overstated and that Republic overpaid for this shareholding.  Goodwill remains one of those contentious, intangible accounting issues that is subject only to the opinions of the buyer.  This aside, the acquisition gives the Bank a toehold into the Barbados market. The parent company (RBL Trinidad) continues to be the major contributor to the Group’s success and profitability. At the end of 2003 it contributed approximately 58% of the Group’s assets and 43% of the operating profits of the group. The Group’s profits before tax increased by approximately 32% from 2002 TT$517M to TT$683M.  The 22% increase in net interest income from TT$811 M to TT$991M and the 15% in other income from TT$445.6M to TT$513M accounts for the increased profitability.

Statutory deposits increased by 92% reflecting the Group’s need to comply with the Guyana and Barbados requirement statutory reserves, which call for 15% and 20% retention of net profit after deductions of tax respectively. The bank is highly leveraged with a debt to equity ratio of 79%, which suggests that Republic may have to put a hold on any further investments for a period.  When the assets and liabilities for Banco Mercantil are valuated we will revisit this ratio to examine the effects of the acquisition. The return on investments for the bank is low at 2%. Republic has to find a balance between the goal of expanding and the need to ramp up some high returns for its shareholders.  While we see potential for recovery in the Guyana and Barbados market we are wary of the Dominica Republic economy. 

Maxine Attong is a
financial consultant
email : enhanceink@hotmail.com