FBN Holdco to make N30bn provision in 2017,  lowers risk appetite

FELIX OLOYEDE

As part of its drive to revert to single digit Non-performing loan by 2019, FBN Holdings has decided to make N5billion impairment provision in each quarter and to ensure increase in its loan recovery.

Speaking at the Group’s “Facts behind the Figures’’ at the Nigerian Stock Exchange (NSE) in Lagos, Urum Kalu Eke, Group managing director, FBN Holdings Plc explained that part of the measures the company has taken was lowering its risk appetite and strengthened its risk management team and corporate governance.

The financial group’s NPL ratio stood at 26 percent in Q1 2017, having increased to 24.4 percent in 2016 with the increased provision on delinquent asset.

Eke disclosed that the company has institutionalized a new credit culture with selection of quality customers and adherence to lending conditions and transaction structuring.

“The Group has revamped the risk management governance and architecture and carried out strategic appointments across the risk management function and building internal capacity in product lines,” he opined.

It has also improved the quality of obligors across the Group and put in place a stronger portfolio of risk assets with sustainable income streams.

He revealed that “There are five major accounts that make this high NPL. By the end of Q2 2017, one of these accounts would drop off,” which would significantly reduce the quantum of its exotic loans.

Eke also stated that when one of the account is resolved about $500 million would be taken of the Group’s NPL, adding that it was regulatory procedures that were delaying the taking of Atlantic Energy, which constitutes one of the huge delinquent loans.

FBN Holdings’ net impairment charge on credit losses was N226bn in 2016 (Q1 2017: N28.8b),  occasioned by the translation effect of devaluation and charge on legacy exposure in a subsidiary, while NPL coverage improved to 57.3% in FY 2016 (FY 2015: 40.2%, Q1 2017: 58.8%].

“NPL coverage is expected to move above 70 percent in 2017 given the strength of the collaterals which adequately cover the value of the loans,” he said.

Eke mentioned that NPLs in FCY constitute 37% of total NPL with adequate coverage, NPL loans to the oil & gas sector constitute 75% of total NPL in 2016, while the general commerce and manufacturing sector constitute 3 percent each in FY 2016 (Q1 2017: 71.4 percent, 3.3 percent and 3 percent respectively).

He further stated that about 5 percent of the loan book has been restructured with oil & gas loans constituting 70 percent of the restructured portfolio in FY 2016, while average duration of loan book was up to 36 months in FY 2016.

He predicted that return on equity when be above10 percent at the end of this financial year as the group plans to reduce cost of risk to less than 2 percent.

FBN Holdco is also targeting to bring cost to income to less than 50 percent, enhance revenue generation and improve return on equity to more than 20 percent in the next two years, at the same time improve dividend distribution.

”In the last two years, the bank has not remitted dividend to the holding company in order to recapitalize the bank,” the GMD asserted.

FBN Holdings is made up of FirstBank of Nigeria Ltd & Subsidiaries, FBN Merchant Bank Ltd and FBN Insurance Ltd.

The GMD also said has successfully carried out 19.7 million transactions in 2016, which was valued over N1 trillion through its FirstMobile/Online platform with 900,000 users enrolled since inception in September 2015 and planning to enroll 3.5 million users by 2019.

The Group is about to introduce agency banking and it is targeting 20,000 active agent locations in two years time, which help improve deposit liabilities, increase income and further drive cost saving.

FBN Holdco’s Profit before tax was N19.9 billion in Q1 2017 (FY 2016: N22.9billion), while its gross earnings stood at N141 billion in Q1 2017 (FY16: N581.8billion, which was one of the highest in the banking sector.).