Analysis Of Situation Of Intercontinental

1. TERMS OF REFERENCE

1.1 The most authoritative basis for the preparation and presentation of financial statement is the one issued by the International Accounting Standards Board (IASB) which states that "the objective of financial statement is to provide information about the technical position, performance and changes in financial position of an enterprise that is useful to a wide range of users in making economic decisions" (IASB, 2003).

1.2. All over the world, billions of dollars are spent annually preparing, auditing and publishing financial statements to satisfy the interest of various users who can be classified as both internal and external users. They include the management, shareholders, prospective investors, customers, suppliers, government or its agencies, lenders, financial analysts and the public at large. The importance of and information needs of the financial statements to all concerned cannot be over emphasized as its contents determine the extent of satisfaction. Financial statements and most of its content are historical in nature, and investment decisions favoured will be based on the current information. Its preparation and level of objectivity has continued to make its content, to serve as the most authentic financial information point concerning any company for either analysis or investment decisions.

1.3 As rightly stated by (IASB, 2003), "the financial position of an enterprise is affected by the resources that it controls, its financial structures, its liquidity and solvency, and its capacity to adapt to changes in the environment in which it operates".

1.4 It is on this premise that I have decided to execute this research by critically analyzing the financial situation of Intercontinental Bank Plc. This will be in terms of her capital adequacy, asset quality, management team, earnings and liquidity.

1.5 REASONS FOR THE TOPIC

The reason for choosing this topic and the industry is because of the pivotal role it plays in issues of commerce and trade and its spiral effect on the nation's economic growth and development. These include helping the government to achieve both micro and macro economy policies through its roles of financial intermediation, trade financing and project development.

1.6 My choice of Intercontinental bank Plc arose from the drive I have seen displayed by the bank to remain steadfast and very relevant in the Nigeria Banking Industry. This had helped with a string of awards, namely: Thisday Newspapers award as the 'Most improved Bank of the year 2005, PEARL Award for sectoral leadership in Banking 2006 and best performer in the Nigerian Stock Market (Banking sub sector). Most Corporate Socially Responsible Bank in Nigeria by Vanguard Newspapers in 2006, Thisday Newspaper Award for Best Stock Offer of the year 2006 and the Nigerian Stock Exchange President Merit Award in the Banking / Finance Sector 2006(Annual report, 2007). She is also being rated high internationally and locally (Fitch Rating A; Agusto and Co: Aa and Global Crediting Rating of South Africa: AA), prior to her merger execution deal on 10th October 2005. The Bank was incorporated as a Merchant bank with the name Intercontinental Merchant Bank Limited on March 1, 1989, with an initial paid up capital of N12 million. (Bank's website). She got the license to operate Universal Banking following one of Nigeria's Banking reforms in 2000. She enlisted on the floor of the Nigerian Stock Exchange on the 9th of January 2003, following a successful IPO of 283,995,000 ordinary shares. In order to meet the conditions of the new banks reforms of N25billion minimum share capital in December 2004, it issued another successful public offer of 2.75million ordinary shares (Annual report 2006). Analysis of the shareholdings of the bank showed that the bank is currently 100% owned by Nigerians.

My knowledge of financial statement analysis in Financial Reporting (2.5) gave me the courage to approach this topic, hence fulfilling the requirement of this research project.

2.0 EXECUTIVE SUMMARY

1. This project set out to obtain information about the capital adequacy, asset quality, profitability, liquidity and management team's competence. The information is very useful as it helps the different stakeholders make informed economic decisions.

2. The financial statements for 2005, 2006 and 2007 were used to carryout a trend analysis. This allowed me carry out a horizontal comparison of its performance and position over the three years in view. The economic conditions of the banking industry were also considered in the analysis.

2.3 It is on this basis that the following submissions are made:

* Its capital adequacy analysis appeared satisfactory.

* Asset quality of the bank looks well managed with enough room for improvement due to the increased capital available as a result of the merger.

* The bank's management team appears well focused to stand the challenges ahead, and needs to pay more attention to its staff's productivity and work on increasing its earnings.

* The earnings ratios of the bank appears okay and require more tenacity by the management team to generate more income and maximize shareholders wealth.

* Its liquidity also appears marginally unfavourable. The bank needs to improve its ability to meet immediate obligations and try to avoid the regulatory body's sanctions.

It is however believed that the future of the company looks bright as it would benefit from the long-run synergies that its merger deals prove to produce in terms of management expertise, large market share, increased capital, e.t.c

3. INFORMATION GATHERING

There can be no meaningful write up or successful research project without gathering enough information, which will form the basis for any submission made. In order to analyse the financial statements of Intercontinental Bank Plc, I used information from both primary and secondary sources.

3.1 METHOD USED TO GATHER INFORMATION

3.1.1 SECONDARY SOURCES

My major source of secondary information was drawn from publications on financial matters, which included well-authored textbooks and sound professional journals in the fields of accounting, banking and finance. I also made several visits to the libraries of the Institute of Chartered Accountants of Nigeria (ICAN) and the Institute of Chartered Bankers of Nigeria (CIBN). Other libraries I visited were those of the Nigerian Stock Exchange (NSE), Lagos Sate University Ojo and the University of