ISSN 1597 – 8842 Vol.1 No.

41

Half Year Results Review

Issued on Aug 30, 2010

© 2010 www.proshareng.com 1
Contents

Oceanic Bank Result – Executive Summary 03

The Operating Environment 07

o The Financial Market in 2009 – Regulatory Reality

o Banking Sector Metrics – Peer Comparisons
o Recovery Strategy and Outlook

Fundamental Analysis 13
o H1 Financials Reviewed
o Q2 2010 Snapshot & Salient Indices

Technical Analysis 21

The Analyst Insight 23

ISSN 1597 - 8842 Vol. 1 No. 41

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1. Executive Summary
Oceanic Bank Nigeria International Plc’s Q2 2010 results for the period ended 30th June,
2010 alongside its Q1 2010 report for the period ended 31st March, 2010 have been
reviewed and form the basis of our objective analysis in this report.

The analysis revealed that the bank is making considerable progress in navigating its
way out of its peculiar and general challenges.

Whilst it is true that banks are back to reporting profits, going by the H1 2010 results
released so far, a key concern with investors appears to be the question of perception
merging with reality – i.e. that most banks actually recorded a decline in interest
income and non-interest income; even though profits were bolstered by write-backs, an
unsustainable activity. Similarly, Investors make the point that not a few banks suffered
a YoY decline in risk assets, which underscores the attitude towards lending at this point
in time.

To unravel this, we made a conscious effort to properly contextualise the operating

realities and environment under which these banks, especially the rescued ones have
had to exist. Reviewing Oceanic Bank Plc’s H1 2010 performance thus, provided us with
such an opportunity.

To create a reasonable linkage with the immediate past of the bank, we recall the
bank’s December 2009 common year-end results (covering the usual 12months period
following the bank’s earlier change from September year end to December year end in
2008) released in compliance with the Central Bank of Nigeria (CBN) uniform
accounting year for banks in the country.

A cursory analysis of the results prior to the Q1 and Q2 results showed that the bank
experienced a myriad of challenges, as showcased in the figures posted in the recently
released results.

This trend started with the restatement of the bank’s year-end result for the period
ended 31st December, 2008 - http://www.proshareng.com/reports/view.php?id=11113 following alleged
material mis-statement discovered in the earlier accounts for the period
presented by the previous management of the bank.

In the restated audited accounts, the auditors formed an opinion - that the current
management team of the bank which resumed in August 2009 following the
intervention of the Central Bank of Nigeria (CBN) identified significant errors and
irregularities in the accounting records of the Bank and some of its subsidiaries, which
were indicative of managements’ over-ride of laid down processes and controls.

To this effect, the current management team, it is understood, carried out a

comprehensive exercise designed to identify and correct all material errors in the
accounting records.

According to the banks auditors - at the end of the exercise, there was‘recognition’ of
loans amounting to N231bn that was previously not recognised; additional provisions
for loans and interest-in-suspense amounting to N238bn and N78bn respectively had
to be made.

At the conclusion of the ‘straightening of account’ exercise, the financial statements of

the Bank and the Group consequently incurred losses before tax amounting to N346bn
and N338bn respectively for the period ended 31 December 2008 and 2009; and

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delivered a negative shareholders funds of N35bn and N28bn respectively as of that
date.

The accounts earlier presented by the former Management of the bank showed group
profit before tax and profit after tax of N8.125bn and N7.126bn respectively for the
periods under reference. These figures when compared with the ‘true’ state of the
bank’s financial report eventually arrived at, showed conditions of the existence of
material uncertainty - casting significant doubts about the bank’s ability to continue as
a going concern.

This was however, as indicated in the restated result, addressed in some ways by the
financial support received from the Central Bank of Nigeria (CBN) which was further
backed by “a confirmation of continued financial support for a period of at least
12 months from the date of these financial statements."

Deriving from the statement above, the going concern of the bank was/is predicated on
the promised continued support from the Central Bank of Nigeria (CBN), which may be
extended or revised based on realities at the time of review before expiration. If the
trends of Q1 and Q2 is sustained and improvements occur in key areas of focus
(discussed in section 2 below); the bank may not need any special financial support,
except of course the AMCON.

Digging in to the Realities

The negative profitability recorded in the re-stated 2008 and 2009 annual reports to
December 31 could be attributed to the overblown loan loss provisions the bank had to
make in recognition of the significant proportion of non-performing loans (NPL’s) it was
carrying in its books. The bank had to make additional provisions for loan losses in the
2008 and 2009 financial years besides the N42bn and N315.115bn loan loss
provisions made in the previous 2008 audited and third quarter report to September
30th, 2009 respectively.

The grave situation in the bank, prior to the intervention of the CBN was evident in the
spike recorded in the banks non-performing loans in its 2009 financial year; up by 43%
to close at N634bn from N443.3bn at the end of 2008, and the ‘unprecedented’
growth in non-performing loan ratio which grew to 72% from 51% of the previous
year.

These figures, though unusual and should naturally constitute serious concern in the
minds of the investing public, however serves as an indicator of the determination of
the bank’s management and board to come clean - reclassify and provide for all loans
correctly in line with CBN’s Prudential Guidelines and the International Standards now
required of all banks operating in Nigeria - so as to purge the bank for a fresh start.

Turning the Corner?

For the 2009 financial year, the Group’s Gross Earnings inched up by 66% to close at
N196.4bn from N118.3bn recorded in 2008, while Net Interest Income grew sharply
from N7.5bn of the 2008 financial year to N101bn in 2009 December. This, according to
the new management, is attributable to the release of previously suspended interest
income on hitherto non-performing loans which have been restructured and are now
performing.

The improvement now seen in the Q1 and Q2 performances is appropriately muted, yet
- such improvements as recorded in the interest income components of the bank;
which inched up by +61.23% and +13.33% in Q1 and Q2 respectively should and
cannot be ignored.

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Could this be an indication of an overall improvement in the bank’s credit management
regime or/and a decline in its internal rate of loan default?

While awaiting the Q3 results to validate these inferences, it is discernable that any
improvement in the bank’s cost efficiency under the new management would lend
credence and integrity to the new management’s approach to profitability.

The cost efficiency measured by cost to income ratio is the gauge for this – and it has
trended downward from 298.38% recorded as at December 31st 2008 to 145.32% at
the close of 2009 financial year to December 31st, 2009 – going further down to
94.47% as at March 31st, 2010 and 87.18% as at 30th June 2010.

Other issues related to imperatives for a turn-around are addressed in section 2.

On the Technical Side…

Oceanic Bank Plc’s share price over a nineteen month period to August 27th, 2010
recorded a negative performance of -88.35% depreciation to close at N1.40 from
N12.02 it closed at the end of January 2nd, 2009 trading session. This trend placed
Oceanic Bank as one of the share prices with negative returns recorded in the sector
using their January 2nd, 2009 price levels.

From January 04th, 2010 the bank’s share price still declined by -20.90%, retaining its
place as one of the negative return stock in the sector.

Indeed, Oceanic Bank Plc share prices at the close of trading on the 26th August, 2010
traded below its 20 days, 50 days and 200 days moving averages. This shows that the
bank’s share remains in the bearish territory.

With the cancellation of the 1 for 10 bonus earlier declared by the former management,
a decision guided by the restatement of its 2008 financials; investors are left to grapple
with the realities of non-commensurable returns on their investments, and for how
long?

We try to provide some insight in our closing remarks in section 5.

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2. The Operating Environment
Since the assumption of office by the incumbent Central Bank of Nigeria Governor,
Sanusi Lamido Sanusi - there have been a wholesome paradigm shift in the banking
industry on many fronts as things appear never to return to the old ways again.

Prominent among the changes that have come into the banking industry is need for
strict adherence to sound risk management beyond a cliché, the adoption of world class
standards in disclosures, and the enthronement of a regulator-sensitive industry.

To achieve the shift in mindset sought, the CBN took fundamental policy decisions –
http://www.proshareng.com/admin/upload/reports/The%20Bull%20in%20the%20China%20Shop%20220809.pdf
(August 22, 2010). In this report, we presented the CBN’s outlook for the financial
market, its interventions and the consequential impact of the steps taken and proposed
– seeking to highlight the implementation variables that could impact the economy,
businesses and the fortunes of the banks. This was followed up with our 100 Days after
Report - http://www.proshareng.com/admin/upload/reports/100_days_after_Report_-_Proshare_251109.pdf; where
we sought to establish the post-intervention realities faced by customers, banks and the
economy as a whole.

The conclusion drawn was that the ‘avalanche effect’ of the actions taken will create
some dislocations in the short term but deliver a financial services sector and economy
that is more credible and stronger in the medium to long term.

During this ‘period of dislocation’, the banks had to contend with excruciating but not
existential circumstances and changes that impacted on how they managed their poor
risk-based decisions, provisions for NPL’s, focus on new businesses and management
changes; further accentuated by the increased political/sovereign risk that pervaded the
economy between November 2009 and February 2010 – all generally creating an
atmosphere, it would appear, under a global crisis - un-conducive to commercial
vibrancy.

Banks in the country underwent a rigorous stress test, the first of such in our clime – the
conclusion of which led to the axing of the Executive Management (CEO’s and ED’s) of
five banks on August 14, 2009. In its subsequent and final audit, the CBN axed the
CEO’s of three additional banks and placed two banks on notice to build up its capital
base by June 2010.

The consequential effect of the exercise – starting from the period of the audit - took its
toll on individual banks, customers and the relationships that existed. Though it was not
unexpected that a general lull would pervade the market for some time; this stretched
a bit further into months, driven in part by a sustained and fast-moving negative news
cycle on the banking sector and the economy.

More importantly, the management and treatment of specialised assets and bank
share-backed collaterals, which needed to be quarantined, led to subjective but
prudence based provisioning that impacted on the performance results of both the
cleared and un-cleared banks. This went on till December 2009 when the CBN audit
undertook its year end review and recognised the need to take a more pragmatic and
best practice view of the provisioning required including the suspension of the general
provisioning rule and the introduction of a prudential guideline to take care of
specialised assets.

In the closing month of 2009, banks, faced with the challenge of operating a cost-
effective institution, undertook the necessary laying-off of staff, partly to help reduce

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their operating expenses; but in the main, to streamline operations relative to the
business available now and foreseeable. This caused some tension in the industry as it
soon became widespread and with such severity that it became a matter for national
discourse.

Since then, some level of stability has been achieved in the sector; with the CBN
equally taking a number of policy steps to steer the ‘reform’ forward. These include:

1. The adoption of a common year accounting date in the sector - revealing where each
bank stood in their fundamental and operational strengths; creating an atmosphere
of healthy competition in financial reporting in the banking sector as observed in the
trend so far – with banks well aware of how such a compliance and improved level
of disclosure will resonate well with an investing public long on suspicion about their
financial health.

2. The adoption of the International Financial Reporting Standard - to bring to bear on the
system a level of transparency which will give the investing public more confidence
in the financial reports of banks - strengths or weaknesses.

3. The formal approval and constitution of the Board and Management of the Asset
Management Company floated by the Central Bank of Nigeria in conjunction with the
Federal Ministry of Finance and backed by the Nigerian Stock Exchange/Securities &
Exchange Commission – expected to go a long way to providing the much needed
respite to the sector, and indirectly to the economy – by easing liquidity into the
system.

4. The review of the practice of Universal Banking – with consequential impact on the
group structure of banks leading to a reining in or extrication of subsidiaries not
directly related to core banking into different models to meet the demands of the
new regulatory regime. It should be noted that a combination of
regulatory/supervisory inertia coupled with misapplication of the concept by banks
created the condition under which deposit-based banks got entangled in linked and
synergetic businesses which, left unregulated or effectively supervised created
conditions that impacted on the outcomes we have. It is expected that most
institutions will have to revisit their business strategy and models to meet this
development.

5. The setting up of about N1 trillion development fund to cater for the financing gap
needs of the power, Aviation and Real Sectors of the Economy.

6. Guidelines on many aspects of banking practices, services and fundamentals.

7. The CBN policy on terms and tenures for MD/CEO’s of banks - the forward dated exits
of three pioneer chief executives of UBA, Zenith and Skye Banks was professionally
well managed by these institutions and stabilised the polity, sign-posting a positive
shift in the change management initiative embarked upon by the CBN.

Nigerian banks since then have taken steps to introduce and/or strengthen the
processes and practice of sound corporate governance and leadership succession in
their institutions.

In effect, a significant shift has been achieved in the banking operator focus – with the
‘flight to quality’ as against the hitherto ‘flight to profit’ mantra of old. Much emphasis
will now be placed on risk quality on all fronts in the sector and no bank will want to be
seen defaulting in delivering on this quality platform. The imperative for quality cuts
across all the strata of banking businesses and quality of items on their financials will be
of paramount focus to the investing public.

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The Banking Sector Metrics of Note…

Source: http://www.proshareng.com/bh.html

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 Sector Metrics – Peer Results Comparison…

The banking sector metrics below show the portraits of the sector based on the results
announced so far.

Peer Results Comparison

Gross Earnings PAT
Period % %
Audited Result Reported Current N'm Previous N'm Variance Current N'm Previous N'm Variance
1 Access Bank Nine Months 66,076.46 89,552.70 -0.26 -4,402.17 20,814.22 -1.21
2 GTB Twelve Months 162,550.00 100,610.00 0.62 23,690.00 28,320.00 -0.16
3 Zenith Fifteen Months 277,300.00 211,600.00 0.31 20,600.00 52,000.00 -0.60
4 UBA Fifteen Months 246,725.00 169,506.00 0.46 2,375.00 40,825.00 -0.94
5 SKYE Fifteen Months 126,665.00 74,615.00 0.70 1,130.00 15,126.00 -0.93
6 DIAMOND Eight Months 67,735.00 108,979.00 -0.38 -8,142.00 5,144.00 -2.58
7 FINLAND Eighteen Months 72,386.00 30,779.00 1.35 -149,770.00 -96,726.00 0.55
8 IBTC Twelve Months 59,781.00 61,239.00 -0.02 8,138.00 11,993.00 -0.32
9 FIRSTBANK Nine Months 196,400.00 152,500.00 0.29 3,200.00 33,900.00 -0.91
10 ECOBANK Twelve Months 59,864.00 55,156.00 0.09 -4,588.00 5,000.00 -1.92
11 STERLING Fifteen Months 46,717.00 36,129.00 0.29 -9,019.00 6,263.00 -2.44
12 FIDELITY Eighteen Months 34,716.00 72,274.00 -0.52 1,557.00 1,430.00 0.09
13 FCMB Eight Months 35,789.00 72,698.00 -0.51 564.33 3,994.00 -0.86
14 UNITY Eighteen Months 46,420.00 42,982.00 0.08 -16,122.00 -12,895.00 -0.25
15 WEMA Twelve Months 18,994.00 16,551.00 0.15 -7,530.00 -20,455.00 0.63
16 UNION Nine Months 113,680.00 146,301.00 -0.22 -281,373.00 -72,854.00 -2.81
17 AFRIBANK Nine Months 93,591.00 98,079.00 -0.05 -230,140.00 -158,473.00 -0.45
18 SPRING Eight Months 17,290.00 25,124.00 -0.31 -24,164.00 -10,228.00 -1.36
19 OCEANIC Twelve Months 196,408.00 118,298.00 0.66 -88,619.00 -234,579.00 -1.36
Source: Proshare Research/Company Financials

st
Peer Assessment Audited Accounts December 31 , 2009
Price - Shares in
Aug 26 Dividend Dividend Earnings PAT issue - Bill
Banks 2010 EPS DPS Payout Yield PE Ratio Yield Margings units
Access Bank 8.01 -0.27 0.00 0.0% 0.0% -29.67 -3.4% -6.7% 16.437
Afribank 1.80 -16.97 0.00 0.0% 0.0% -0.11 -942.8% 428.1% 13.559
DIAMOND BANK 6.55 -0.56 0.00 0.0% 0.0% -11.70 -8.6% -12.0% 14.475
Ecobank 4.65 -0.64 0.00 0.0% 0.0% -8.73 -11.5% -7.7% 7.218
FCMB 6.58 0.00 0.05 145.2% 0.6% 245.41 0.4% 1.6% 16.380
Fidelity 2.34 0.05 0.03 46.3% 1.1% 43.33 2.3% 4.5% 28.963
First Bank 12.12 0.11 0.10 90.9% 0.8% 110.18 0.9% 1.6% 29.010
FIRSTINLAND 0.51 0.06 0.00 0.0% 0.0% 8.50 11.8% -206.9% 16.721
GTB 15.50 1.52 0.75 49.3% 4.8% 10.20 9.8% 14.6% 23.310
IBTC 8.60 0.43 0.30 69.8% 3.5% 20.00 4.8% 13.6% 18.750
Intercont 1.60 -12.58 0.00 0.0% 0.0% -0.13 -786.3% -152.2% 18.860
Oceanic 1.34 -3.63 0.00 0.0% 0.0% -0.37 -270.9% -45.1% 24.444
SKYE 6.52 0.10 0.05 50.0% 0.8% 65.20 1.5% 0.9% 11.580
Spring 0.84 -2.13 0.00 0.0% 0.0% -0.39 -253.6% -139.8% 11.321
Sterling 1.79 -0.72 0.00 0.0% 0.0% -2.49 -40.2% -19.0% 12.563
UBA 9.17 0.11 0.10 90.9% 1.1% 83.36 1.2% 1.0% 21.560
Union 4.79 -20.83 0.00 0.0% 0.0% -0.23 -434.9% -123.6% 13.510
Unity 1.11 -1.09 0.00 0.0% 0.0% -1.02 -98.2% -34.7% 14.737
Wema 0.78 -0.73 0.00 0.0% 0.0% -1.07 -93.6% -39.6% 10.321
ZENITH 12.51 1.21 0.45 37.2% 3.6% 10.34 9.7% 7.4% 31.390
Source: Proshare Research/Company Financials

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Q1 and Q2 2010 Metrics – Peer Comparison…

Q1 - March 31, 2010 - Price as at Aug 26 , 2010

Shares in
Earnings issue in
Metrics(Q1 2010) Market Price EPS PE Ratio Yield PAT Margin Billion units
1 ACCESS 8.01 0.24 33.38 3.00% 14.47% 16.437
2 AFRIBANK 1.8 0.14 12.86 7.78% 7.65% 13.559
3 DIAMOND 6.55 0.11 59.55 1.68% 6.23% 14.475
4 ECOBANK 4.65 0.15 31 3.23% 7.82% 7.218
5 FCMB 6.58 0.055 119.64 0.84% 6.26% 16.38
6 FIDELITY 2.34 0.051 45.88 2.18% 10.49% 28.963
7 FBN 12.12 0.43 28.19 3.55% 19.79% 29.01
8 FINBANK 0.51 0.06 8.5 11.76% 7.92% 16.721
9 GTB 15.5 0.38 40.79 2.45% 33.07% 23.31
10 IBTC 8.6 0.43 20 4.83% 9.44% 18.75
11 OCEANIC 1.34 0.07 19.14 5.22% 5.53% 24.444
12 SKYE 6.52 0.19 34.32 2.91% 9.44% 11.58
13 STERLING 1.79 0.1 17.9 5.59% 15.33% 12.563
14 UBA 9.17 0.07 131 0.76% 3.23% 21.56
15 UNION BANK 4.79 0.25 19.16 5.22% 9.72% 13.51
16 WEMA 0.78 0.07 11.14 8.97% 8.02% 10.321
17 ZENITH 12.51 0.3 41.7 2.40% 17.28% 31.39
Source: Proshare Research/Company Financials

Q2 - June 30th, 2010 - Price as at Aug 26, 2010

Market Price at Earnings Shares in
Banks Aug 26, 2010 EPS PE Ratio Yield Div Yield PAT Margin issue (M)
1 DIAMOND 6.55 0.32 21.78 4.59% 0.00% 9.94% 14,475.24
2 FCMB 6.58 0.17 41.91 2.39% 0.70% 9.33% 16,271.19
3 FIDELITY 2.34 0.11 22.33 4.48% 0.98% 12.22% 28,974.80
4 FBN 12.12 0.78 16.67 6.00% 0.77% 20.73% 32,632.08
5 GTB 15.5 0.78 21.75 4.60% 4.41% 21.97% 23,317.19
6 INTERCON. 1.6 0.12 14.22 7.03% 0.00% 5.28% 18,860.01
7 SKYE 6.52 0.44 16.39 6.10% 0.69% 9.79% 11,584.97
8 STANBIC 8.6 0.28 30.81 3.25% 3.45% 18.66% 18,750.00
9 UBA 9.17 0.19 55.98 1.79% 0.95% 5.18% 25,867.75
10 OCEANIC 1.34 0.34 3.97 25.16% 0.00% 12.82% 24,443.51
11 ECOBANK 4.65 0.11 40.87 2.45% 0.00% 6.44% 14,475.24
12 STERLING 1.79 0.31 5.71 17.52% 0.00% 24.18% 12,563.09
13 ZENITH 12.51 0.68 19.89 5.03% 3.33% 22.00% 31,396.49
Source: Proshare Research/Company Financials

Some stock price movements in the banking sector in 2010 have been positive
notwithstanding the bearish trend in the recent times.

Stocks that recorded negative performance of different magnitude can be seen in the
table below with Oceanic Bank in the chart with -8.17.

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 % Change % Change % Change
Jan'10 - Aug'10 - Aug'10 -
Banks 31-Dec-09 4-Jan-10 Apr'09 27-Aug-10 Jan'10 Dec'09
1 ACCESS 7.6 7.55 -0.66% 8.01 6.09% 5.39%
2 AFRIBANK 2.55 2.43 -4.71% 1.8 -25.93% -29.41%
3 DIAMONDBNK 7.4 7.19 -2.84% 6.55 -8.90% -11.49%
4 ECOBANK 10.63 10.1 -4.99% 4.65 -53.96% -56.26%
5 FCMB 7.16 7.01 -2.09% 6.58 -6.13% -8.10%
6 FIDELITYBK 2.4 2.52 5.00% 2.34 -7.14% -2.50%
7 FIRSTBANK 14.05 14 -0.36% 12.12 -13.43% -13.74%
8 FIRSTINLND 0.53 0.55 3.77% 0.51 -7.27% -3.77%
9 GUARANTY 15.5 15.78 1.81% 15.5 -1.77% 0.00%
10 IBTC 7.47 7.16 -4.15% 8.6 20.11% 15.13%
11 INTERCONT 1.61 1.69 4.97% 1.6 -5.33% -0.62%
12 OCEANIC 1.69 1.77 4.73% 1.34 -24.29% -20.71%
13 PLATINUM 1.32 1.38 4.55% 1.14 -17.39% -13.64%
14 SKYEBANK 5.49 5.48 -0.18% 6.52 18.98% 18.76%
15 SPRINGBANK 0.76 0.73 -3.95% 0.84 15.07% 10.53%
16 STERLNBANK 1.23 1.26 2.44% 1.79 42.06% 45.53%
17 UBA 10.8 10.81 0.09% 9.17 -15.17% -15.09%
18 UBN 6 6.25 4.17% 4.79 -23.36% -20.17%
19 UNITYBNK 0.84 0.87 3.57% 1.11 27.59% 32.14%
20 WEMABANK 0.93 0.97 4.30% 0.78 -19.59% -16.13%
21 ZENITHBANK 13.6 13.5 -0.74% 12.51 -7.33% -8.01%
Source: Proshare Research/Company Financials

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Oceanic Bank Plc’s Recovery Strategy and Outlook

Management represents that http://www.proshareng.com/reports/view.php?id=2315 the following

are some of the strategies being put in place to further reposition the bank

Remain focused on our customers;

Be committed to the enthronement of strong corporate governance;
Sustain the momentum of the last two months that has resulted in deposit growth,
loan recovery and improvements in efficiency;
Carefully monitor credit quality and proactively work with customers to remedy
delinquencies and mitigate further deterioration of their loans;
Use capital wisely; and
Continue to review and control expenses.

Investors http://www.proshareng.com/investors/company.php?ref=OCEANIC continue to seek out a

much more detailed insight into the short term and medium term plans of the bank and
below, we provide an insight into what we believe Oceanic Bank Plc’s management
thinking is.

Short Term
Retain and build up customer confidence by engaging at the level of service delivery
and direct engagements with its publics;
Avoid loss of depositors funds by leveraging the banks experience in retail banking;
Establish the risk management model of the bank; and
Build aggressively the capacity to ensure that low-cost deposit mobilisation. Our
insight in this area is predicated on the table below:

Deposit Base
Date (N'bn) Change
14/08/09 528
10/10/09 430 -18.6%
31/12/09 545 26.7%
27/08/10 620 13.8%
NB: August figures are Proshare estimates
Medium Term

Preserve value for shareholders – an approach open to the bank is the management
of its NPL recovery process;
Engage its shareholders (some of whom form the bulk of the NPL portfolio)
constructively to address the negative shareholders funds situation;
Approach AMCON to raise cash; and
Identify a strategic investor as part of its recapitalisation imperative under an M&A
deal.

In their own words - Oceanic Bank Financials

Following the release of its FY’09 (12-months December) and Q1’10 (3-months March)
results, Oceanic Bank International Plc’s Chief Financial Officer, Mrs. Oyinkan Adewale,
on June 24, 2010 appeared on CNBC Africa, providing some much needed clarity on
the Bank’s efforts at ensuring a return to profitability, its recovery drive, Balance Sheet
position, recapitalization and business strategy. Highlights of her interview, courtesy
Vetiva Research can be downloaded here http://www.proshareng.com/reports/2736.

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3. Fundamental Analysis
The Objective: To examine in a snapshot, the bank's financials and operations, especially earnings,
growth potential, assets, debt, management, products, and competition through financial ratios
arrived at by studying the balance sheet and profit & loss account over a number of years. This
analysis is more effective in fulfilling long – term growth objectives of shares, rather than their short –
term price fluctuations. In the Nigerian Stock Market, this has traditionally been the key focus of most
players and it remains a guiding beacon as to what could possible happen to a stock. Our approach
to fundamental analysis therefore takes into consideration only those variables that are directly
related to the company itself, rather than the overall state of the market or technical analysis data,
the former of which was reviewed in section 2 above and the latter, a subject for review in section 4
below.

OCEANIC BANK PLC Balance Sheet @ 30 June 2010

Group - June 2010 Group - Dec 2009
(N'm) (N'm) % Variance
ASSETS:
Cash & Short Term Funds 34,591.97 54,707.47 -36.77%
Treasury Bills 38,363.83 30,447.83 26.00%
Due from other banks and Financial Institutions 71,032.47 39,192.60 81.24%
Short Term Investments 40,331.67 29,256.08 37.86%
Loans and Advances 400,101.46 387,803.73 3.17%
Advances under Finance Lease 1,727.49 3,209.04 -46.17%
Investment Securities 127,902.00 103,732.12 23.30%
Deferred tax asset 132,430.27 133,422.86 -0.74%
Other Assets 35,644.18 40,957.62 -12.97%
Investment Property 11,526.00 12,156.32 -5.19%
Property & Equipments 64,163.30 66,213.83 -3.10%
Total Assets 957,814.66 901,089.53 6.30%
Liabilities
Customers' Depositis 629,228.59 556,781.49 13.01%
Due to Other Banks 245,568.06 278,330.69 -11.77%
Other Borrowings 26,210.62 25,830.00 1.47%
Current Income Tax 3,620.99 2,797.33 29.44%
Other Liabilities 60,066.76 51,716.45 16.15%
Retirement Benefits Obligations 1,798.31 1,557.72 15.45%
CBN Convertible loans 100,000.00 100,000.00 0.00%
Total Liabilities 1,066,493.34 1,017,013.68 4.87%
Equity
Share Capital 11,111 11,110.68 0.00%
Other Reserves -125,000 -126,677.26 -1.32%
Attributable to Equity Holders of the parent -113,889 -115,566.58 -1.45%
Non-Controlling Interest -349.194 -357.57 -2.34%
Total Equity -114,239 -115,924.15 -1.45%
Total equity and Liabilities 937,701 901,089.53 4.06%
Contingent Liabilities and Commitments 102,282 107,715.38 -5.04%
Source: Proshare Research/Company Financials

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 OCEANIC BANK PLC H1 2010 Income Statement Results
Group - June 2010 Group - Sept 2009
Profit and Loss Account (N'm) (N'm) % Change

Gross Earnings 64,266.49 69,462.00 -7.48%

Interest Income 54,052.01 47,695.00 13.33%
Interest Expense -29,093.18 -28,762.00 1.15%
Net Interest Income 24,958.83 18,932.00 31.83%
Net Fee and Commision Income 7,312.92 14,018.00 -47.83%
Foreign Exchange Income 2,090.03 5,672.00 -63.15%
Underwriting Profit/Loss 604.18 1,016.00 -40.53%
Trusteeship Income 4.27 0.00 0.00%
Income from Investments 203.05 1,060.00 -80.84%
Other Income 10,214.48 21,767.00 -53.07%
Operating Income 35,173.31 40,700.00 -13.58%
Operating Expenses -34,920.03 -45,395.00 -23.08%
Write back/Provision for Losses 9,937.75 46,088.00 -78.44%
Profit/Loss before taxation 10,191.04 50,783.00 -79.93%
Taxation -1,949.91 9,855.00 -119.79%
Profit/Loss after taxation 8,241.12 -40,928.00 -120.14%
Non-controlling interest -112.80 -264.39 -57.34%
Profit attributable to the group 8,128.31 -41,192.00 -119.73%
Key Financial Information
Earnings per share (basic) 37.00 -184.00 -120.11%
Earnings per share (diluted) 37.00 -184.00 -120.11%
Source: Proshare Research/Company Financials

GENERAL COMMENTS AND OBSERVATION

Second Quarter Results Analysis

Gross Earnings and Profitability: The bank in Q2 recorded a marginal decline in its
gross earnings by -7.48% to close at N64.266bn compared with N69.462bn recorded
in the preceding comparable period.

Heavy declines recorded in some income components accounted for the decline.

However, the result showed growth in profitability measures on a quarter on quarter

basis with 391.4% growth recorded over the preceding quarter figures.

Comparing these figures with the preceding year’s comparable period indicates a
material improvement by 120.14% to close at N8.241bn as against the loss of
N40.928bn reported last year.

The earnings per share (EPS) of the bank as at 30th June 2010 stood at 37k compared
with 8k recorded as at 31st March 2010.

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The trend in the bank’s profitability is showcased in both PBT and PAT margins for the
period, following the trend of negative profitability.

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The trend has definitely created a run on the earnings per share (EPS) of the bank as
depicted by the chart below.

Given the improved profitability recorded in the first and second quarters of the year, it
is probable that the bank should be able to sustain the improvement going forward.

Deposit Base and Net Interest Margin: The bank recorded growth in its deposit
base in Q2 by 13.10% to close at N629.228bn when compared with N556.781bn
recorded in the preceding year comparable period. This is an improvement.

Financial Efficiency: The bank’s financial efficiency as measured by cost to income

ratio (quarter by quarter basis) trended downward when measured - down to 87.18%
as at 30th June, 2010. The ratio measured by H1 2010 compared with H1 2009 declined
to 99% from 112% reported as at the previous year’s comparable period.

This showed commendable improvements over the trend recorded in the three
preceding quarters. We hope the management would strive to beat down this abnormal
rate to avoid recording depletions in the coming periods. The management attributed
the change to the impact of their staff rationalisation exercise - embarked upon in
December 2009.

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Provision for Loan Losses: The bank made write backs of N7.428bn and N9.938bn in
Q1 and Q2 results respectively. This trend is likely to continue.

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Non-Performing Loans and CAR: The Capital Adequacy Ratio of the bank still
remains in the negative region, far below the regulatory threshold of minimum of 10%.

The burden of non-performing loans and the precarious situations of its financials as
revealed by negative shareholders’ Funds could be attributed to the Bank’s CAR.

Oceanic Capital Adequacy Ratio as at 30th June, 2010 still left much to be desired,
though the non-performing loan to total loan ratio declined to 68% by June 30th, 2010
from 71.2% reported as at March 31st, 2010.

Oceanic Bank’s loans to deposit ratio on quarter to quarter basis remained on the
historical profile level; the rate declined to 63.59% in the second quarter period to June
30th, 2010 from 65.67% recorded by March 31st, 2010.

Loans and Advances

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Total Assets and Total Deposits: The total assets of the bank, after the 179.43%
growth recorded in 2007 financial year has been on a steady decline.

The total assets recorded a decline of 30.06% in December 2009 measured YoY. Close
scrutiny of the figures indicate that significant declines were recorded mainly in the
liquid assets – and this is evident in the precarious situation of the bank’s liquidity as
reported by the management. On the quarter to quarter basis, the two financial indices
assumed uptrend in the first quarter period, still maintained in the second quarter,
albeit on decline note.

In the Twelve months period to December 31st 2009, customers’ deposits dipped by
48.47% to close at N556.781bn from N1.089 trillion of the preceding year. This was an
improvement from the immediate post intervention decline that occurred. The
estimated figures for August 2010 indicate that depositor’s confidence has been
restored and sustained. Q3 2010 should validate this further.

Earnings Performance: As a result of the negative profitability in the books of the

bank, the bank’s earnings performance, as measured by the returns on average assets
and returns on average equity closed on the negative note.

The banks return on equity and return on assets as at December 31st 2009 stood at -
35.31% and -4.54% respectively, an improvement from -843.96% and -18.22%

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recorded for return on equity and return on assets respectively for the period ended
31st December, 2008. These negative figures showed the magnitude of deteriorations in
both assets and profits. However, there seems to be improvements in the subsequent
quarters as could be seen in the chart below.

Shareholders’ Funds and Total Assets: The decline in shareholders’ fund is in a way,
a pointer to weak Capital Adequacy Ratio of the bank.

The Bank’s shareholder’s fund closed at the negative of N116bn by December 31st 2009
from the negative of N27.699bn reported as at 31st December, 2008. Shareholders’
fund still closed in the negative of N114.239bn as at 30th June, 2010. This is an
indication of the unhealthy capital adequacy ration for the bank – a matter its
management is acutely aware of.

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4. Technical Analysis
The Objective: To review the stock valuation by relying on the assumption that market data,
such as charts of price, volume, and open interest, can help predict future (usually short-
term) market trends. Unlike fundamental analysis, the intrinsic value of the stock is not part
of the consideration here. More and more investors are beginning to appreciate and rely
on technical analysis in reviewing stocks on the Nigerian Stock Exchange because of the
proven fact that market psychology influences trading in a way that enables predicting
when a stock will rise or fall. For that reason, technical analysis are market timed based and
predicated on the belief that technical analysis can be applied just as easily to the market
as a whole as to an individual stock.

MOST RECENT STOCK PERFORMANCE OF OCEANIC BANK SHARES

Oceanic Bank International Plc’s share price in the last seventeen months to August
26th, 2010 recorded -88.85% depreciation to close at N1.34 from N12.02 attained on
the January 2nd, 2009 trading session. This trend placed Oceanic Bank International Plc
as one of the banks in the sector with massive price decline below their January 2nd,
2009 price levels.

In the same vein, in the year 2009 alone, the share price of the bank closed with -
85.94% depreciations, well above depreciations of -33.80% recorded in the entire
market in the period. It is instructive to note that this negative stock price performance
had shown signs of a strain long before the August 14th, 2009 shake up in the banking
sector in which Oceanic Bank was one of the first five banks directly affected. The
action however escalated a pending reaction from investors who had been sceptical of
the banks financials based on rumours that was rife in the market.

Other reasons that could be adduced to the scenario were myriads of uncertainties that
trailed the affairs of the bank, which includes unattractive results declarations and some
bickering in the bank which sent jitters to the investors holding the shares of the bank.

In the year 2010, the bank as at 26th August, 2010 recorded year to date marginal
depreciations of -20.71%.

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THE ASI AND OCEANIC BANK PLC

There is a wide gulf between the All-Share Index and Oceanic Bank International Plc
share as the performances of the comparism seems to be inverse. In the year 2009
alone, the share price of the bank closed with -85.94% depreciations, compared with -
33.80% depreciations recorded in the entire market in the period.

In the year 2010, while Oceanic Bank International Plc share price depreciated
marginally by -20.71%, All-Share Index has recorded year to date appreciation of
+16%. This shows Oceanic Bank International Plc performed both below ASI and the
entire banking sector performance in the current year.

As illustrated from the graph below, the Oceanic Bank International Plc share price now
trades below its 20 days, 50 days and 200 days moving averages of N1.69, N1.71 and
N1.91 respectively.

The price moving average trend indicates that Oceanic Bank Plc share price has a high
rate of volatility as investors that now patronise the bank, do so on a speculative basis.

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5. Analyst Insight
The Objective: This is not an opinion on the stock (given that we still await specific
information required to form an objective opinion). To enable investors make sense of
the data released however, and considering the significance of the paradigm shift taking
place in the banking industry; we have thus provided an insight into the deductions we
are able to make from the information available for further review and professional
advice.

Oceanic Bank International Plc, as seen from the review carried out to gauge its
operations and its going concern status would need to address three key imperatives:
1. The continued professional management of the entity as done so far to sustain
the recovery and repositioning objectives undertaken;
2. The deft management of the shareholders contribution to the NPL’s in addition to
its larger debt recovery efforts to reduce its requirements from the AMCON and
improve the shareholders funds; and
3. The enhancement of value for shareholders through a recapitalisation
programme that would necessitate an M&A arrangement in the absence of a core
investor. This would be predicated on the management’s ability to navigate the
negotiations and discussions without recourse to unending litigations.

It is trite knowledge that the new management has been able to present a case for the
banks going concern, albeit with a guaranteed lifeline from the CBN.

However, the most significant step must be that taken by the new management to
straighten the 2008 audited account earlier published by the sacked management; and
should aid it in its desire to a true and fair view of the financial profile of the bank to
date. But for the action taken, the result would have still remained an illusion of its
realities.

Of huge concern must be the negative shareholders’ fund in the books of the bank
which speaks volume of the unhealthy status of the bank. A reliance on interbank
borrowings to finance operations is an unsustainable option. This can be reversed as
more positive news is made available to the market on the three key points raised
above.

It appears incumbent upon the bank to impress it on existing shareholders the reality of
its situation, and the options open to them as long term investors.

Given the relief which the AMCON platform represents, and the outcomes from the
management of discussions with shareholders involved in insider-related credits forming
the bulk of its NPL’s; it is possible to inch closer to redemption that it is to fail.

Q3 and indeed Q4 2010 should be a veritable measurement of how well and how far the
management has gone in moving the entity closer to a position where it’s going concern
status will not elicit such fears – from investors and patrons alike.

We look forward to more positive news from the bank, which the market will have to
price into its decision model on the bank.

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