The transition to merchant banking expanded our business portfolio and created additional opportunities to increase our revenues. Although interest income from loans and advances, treasury bills and government bonds fell by 15%, from N15.1billion in 2015 to N12.8billion in 2016, other income increased by 33% from N6.1billion in 2015 to N8.1billion in 2016. The strong growth in operating income was driven by fee and commission income and foreign exchange gains. Operating costs increased by 39% from N2.3billion to N3.2billion due to generally higher costs of doing business in the country during the year and an increase in head count as a result of business expansion. We ended the year with profit before tax of N4.9billion, 29% above the previous year. Our customer loan portfolio grew by 14% to N41.7billion while total assets grew by 22% to N137.3billion. We remain well capitalised with an equity base of c. N28.96billion and capital adequacy ratio of 22.59%.
The tough macro conditions are expected to persist through the first half of the year, with a gradual improvement in the second half. Oil prices are expected to remain stable around USD50 per barrel ensuring fairly stable government revenue.
The banking sector is likely to come under further strain in 2017. Years of double digit growth in balance sheet sizes have been followed by underlying growth almost grinding to a halt in 2016 (once foreign exchange devaluation impact is excluded). Banks’ capital adequacy ratios may come under pressure, and as such banks will likely require additional capital buffers.
Despite the challenging backdrop, economies of scale advantages which were clear to see in 2016 are likely to grow as a differentiating factor in the sector; essentially, flight to quality will become more pronounced in 2017. Our clients, now more than ever, require us to deliver value added solutions. We plan to differentiate ourselves in the merchant banking segment by building a strong client-centric operating model. We expect that access to a wider funding base, a broader business platform; bench strength, and greater focus on extracting synergies which will enable us generate another solid financial performance. In 2017, we will explore opportunities to take informed risks to increase our revenues and grow our balance sheet, while continuing to proactively manage our liquidity and capital.