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Published On: Sun, May 13th, 2018

Investment securities, lower impairment charges lift FBNH profit 179%

By FELIX OLOYEDE

Strategies adopted by First Bank of Nigeria Holding Company (FBNH) to bring down non-performing loans (NPLs) in its core commercial banking operations are gradually yielding fruit. Containment of loan losses and growth in income from investment securities combined to give the bank a massive jump in its net earnings.

FBNH’s profit-after-tax for 2017 went up 178.8 percent to N47.8 billion, the highest leap the holding company has achieved in over five years. Company press releases suggest that shareholders will receive a 25 kobo dividend or 17 percent lower than the 30 kobo it paid in 2016.

The group, which resolved last year to bridle its risk appetite and pegged credit to a single obligor to N30 million, reduced its impairment charges on loan loss by 33.5 percent to N150.42 billion. And its NPL ratio (delinquent loans to total loans ratio) dropped from 24.4 percent in 2016 to 22.8 percent at the end of last year, though this is still the highest among the eight-tier one banks in Nigeria, analysts believe its downward direction is impressive. Non-performing loans were pruned down by 11 percent to N520 billion as FBNH religiously implements reforms to reduce the size of its toxic assets.

“Although high NPLs still pose a major challenge to FBN Holdings, it has made significant progress in reducing bad loans,” said Kayode Tinuoye, a financial analyst at United Capital Plc.

The Holdco’s group managing director, Mr U.K. Eke, noted in remarks on the recently released accounts, “We recognise the need for accelerated resolution of our legacy assets to demonstrate sustained improvement in asset quality as the progress we made during the year was moderated by developments in Q4 which kept our performance below guidance. This was largely as a result of the impairment of 9mobile, which was across the industry, as well as the foreign currency translation impact on our existing portfolio. These are one-off events and we assure that appreciable progress would be made on NPL in 2018 in line with our 3-year strategic plan,” he explained.

As part of efforts to strengthen FBN’s risk management, the Holdco appointed a new chief risk officer, Mr Olusegun Alebiosu, to get a firm handle over assets and steer asset quality to the top of the first league. The impact of this moved showed up in the group’s cost of risk (credit impairment charges divided by the average opening and closing gross loan balances) declining to 6.4 percent in 2017 from 10.4 percent in the previous year.

FBNH NPLs started ballooning in 2014 when oil prices began to slide, falling below $27 per barrel in February 2017, which adversely affected the banks’ oil and gas customers, which the bank had been heavily exposed to in the last decade.

The group’s gross revenue improved 2.8 percent to N595.4 billion relative to N581.8 billion in 2016, largely on the back of a 15.9 percent growth in interest income, which was bolstered by enhanced yields and volume growth in investment securities. A 31.5 percent decline recorded in non-interest income, due to -76.36 percent dip in net gains on foreign exchange, slowed the Holdco’s revenue drive.

Foreign exchange income plunged 76.1 percent  as a result of greater stability in the country’s forex market in the better part of last year after the Central Bank introduced the Nigerian Autonomous Foreign Exchange (NAFEX) window on April 24, 2017, dragged non-interest income down by 31.3 percent to N113.7 billion from N165.5 billion in the prior period.

Fees and commission (F&C) income, representing 65.5 percent (Dec 2016: 43.1 percent) of total non-interest income, increased by 4.3 percent to N74.5 billion. The growth in F&C was driven by the 14.4 percent rise in electronic banking fees to N25.0 billion (Dec 2016: N21.8 billion).

Interest income and non-interest income contributed 78.9 percent and 19 percent respectively to gross earnings. And First Bank contributed 90.95 percent of the total revenue FBN Holdings generated in 2017.

Operating expenses climbed 7.7 percent to N238 billion, pushed up by 45.88 percent rise in directors’ emoluments and legal and other professional fees, which increased 42 percent in 2017. And despite 4 percent decline in salaries and wages as a result of First Bank laying off staff and closing some of its unviable branches, personnel costs rose 2.23 percent to N85.68 billion, majorly driven by termination benefits, which increased 364.46 percent. The group spent more to earn revenue last year as cost-to-income moved up to 53.5 percent from 47 percent in 2016, but this was within FBNH’s 55 percent guidance.

Total assets grew 10.5 percent to N5.2 trillion, propelled by a 16.9 percent increase in interest-earning investment securities to N1.4 trillion (Dec 2016: N1.2 trillion). “Despite the weak lending environment, earning assets have been further optimised with total interest-earning assets growing by 11.1 percent y-o-y to N4.2 trillion from N3.74 trillion in December 2016, representing 79.4 percent of total assets (Dec 2016: 79.0 percent),” the group claimed it a release.

The need to keep rising NPL in check, which has made FirstBank to develop a low-risk appetite, caused total loans and advances to customers to slide 4 percent to N2.0 trillion from N2.1 trillion in 2016. But FBNH attributed the drop to the weak lending environment from the persisting macroeconomic challenges which constrained business and consumer activities.

Total customer deposits were up 1.3 percent from N3.10 trillion in 2016to N3.14 trillion last year, taking advantage of growing cheap deposits.

Improvement in AFS by 183.5 percent, statutory credit reserves81.1 percent and foreign currency translation reserves, which increased 38.4 percent, buoyed shareholders’ funds 16.4 per cent to N678.2 billion in 2017.

First Bank of Nigeria’s capital adequacy ratio dipped marginally to 17.7 percent (Dec 2016: 17.8 percent), but it was 270basis points above the regulatory minimum of 15 percent, while the Capital adequacy ratio for FBNQuest Merchant Bank closed at 15.7 percent (Dec 2016: 22.6 percent) above the 10% required by regulation for Merchant Banks.

Liquidity ratio of First Bank of Nigeria, which stood at 51.1 percent (Q4 2016: 52.7 percent), is above the 30 percent regulatory benchmark.

With the better performance of the Holdco last year, its earnings per share rose 206.4 percent to N1.21 from N0.39 in 2016. And earning yields (Interest income divided by the average opening and closing balances of interest-earning assets)rose 1.71 percent to 11.9 percent.

While post-tax return on average equity (profit after tax attributable to shareholders divided by the average opening and closing balances attributable to equity holders) jumped to 7.6 percent from 3 percent in the preceding year, post-tax return on average assets (profit after tax divided by the average opening and closing balances of its total assets) also went up to 1 percent from 0.4 percent in 2016.

Also, FBNH leverage (total assets divided by shareholders’ equity) fell to 7.7 percent from 8.1 percent in 2016, while Book Value Per Share (BVPS) (total equity divided by the number of outstanding shares) was up to 18.9 percent from 16.2 percent.

“We recognise the need for accelerated resolution of our legacy assets to demonstrate sustainable improvement in asset quality as the progress we made during the year was moderated by developments in Q4 which kept our performance below guidance. This was largely as a result of the impairment of 9mobile, which was across the industry, as well as the foreign currency translation impact on our existing portfolio. These are one-off events and we assure that appreciable progress would be made on NPL in 2018 in line with our 3 years strategic plan.

In summary, we are delighted to say that we have made good progress towards achieving our 2019 strategic goals and are confident that 2018 will be another year full of successes for the Group,” Dr. Adesola Adeduntan, managing director, First Bank of Nigeria noted while commenting on the performance of the group in 2017.

If the Nigerian economy consolidates on the recovery recorded last year and oil price maintains the current trend, FBN Holdings is expected to further build on the successes it gained last year.

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