First Bank: Market expectant as new leadership prepares to take over

 

The nation’s financial market is at the moment caught in a waiting mode as a new leadership prepares to take over the helm of affairs in Nigeria’s oldest surviving lender, First Bank, Hallmark checks have uncovered.

Softening the ground is the fact that the change which follows the impending retirement of Mr Stephen Olabisi Onasanya as GMD has been seemingly rancour-free and without speculations of friction which dominated boardrooms in 2009. 

In fact, the over a century old firm has, more often than not, been adept at managing its transition with little crisis, even when there is any disagreement, not a big fuss is made about it.

However, what has dominated the boardrooms and financial arena since the announcement is whether the new team can deliver the goods.

Interestingly, the chairman of the Holding company, Oba Otudeko, assured the public that the new team was reliable given the rigour it took the organisation and Heidrick & Struggle, the internationally renowned executive search firm, to bestow such herculean responsibility and confidence on them.

However, there is concern over the future of the bank which revered position is being challenged by its competitors.

The changes threw up the current Executive Director, South, First Bank of Nigeria (FirstBank) Limited, Mr. U.K Eke, to replace Mr. Bello Maccido, as Group Managing Director-designate, FBN Holdings Plc.

The current Chairman of FirstBank, Prince Ajibola Afonja also retires and Mrs. Ibukun Awosika takes over as the new Chairman of the bank.

While the current Executive Director/CFO, Dr. Adesola Adeduntan, emerged Managing Director-designate of the live wire of the Group, FirstBank , the current Executive Director, Lagos & West, Mr. Gbenga Shobo, emerged Deputy Managing Director-designate, a new office which may have been created to avoid the previous rigour in arriving at who becomes helmsman of the bank subsequently.

The holding company had explained that the decisions had been ratified by the board of directors, subject to all necessary regulatory approvals, and would take effect from January 1, 2016.

FBNH said: “As pioneer Group CEO of the FBN Holdings Group in very critical times, Maccido birthed the process to establish the multi-faceted group to comply with diverse regulatory requirements, navigating through uncharted territory.

“He will undoubtedly bring his wealth of experience, spanning over 30 years post call to the Bar experience as an accomplished retail, corporate and investment banker, to bear in his new role chairing the board of the emergent FBN Merchant Bank Limited.” 

The incoming GMD-designate of the holding company, Eke, has over 30 years post experience in financial services, auditing, consulting, taxation, process engineering and capital market operations.

“Dr. Adeduntan, the Managing Director-designate, has garnered diverse expertise in treasury and financial management, risk management, accounting, corporate governance and strategy development, advisory and compliance.

“The new DMD-designate, Mr. Shobo, has a banking career spanning over 25 years with experience in corporate banking, institutional banking, commercial banking, retail banking and treasury,” the statement said.

Speaking on the appointments, the Group Chairman, FBNH, Mr. Oba Otudeko, said: “Following an exhaustive and competitive process, we are proud to announce these appointments. In reaching these decisions, we were mindful of the imperatives for a more efficient group structure that will benefit the group’s need to deploy systems which deepen efficiency while expanding revenue and returns on investment.

“We are confident that we have made the right choices in these appointees. In selecting our MD and DMD of FirstBank, we were particularly mindful to identify outstanding and top notch professionals with complementary and mutually reinforcing skills set.

“These appointments are a testament to the strength of our succession planning mechanism and the calibre of candidates it produces.

It also re-articulates our commitment to put our customers first with the confidence in the value that this new leadership team brings to bear on behalf of the Group, customers and employees, even as we strive to return greater value to shareholders”, Otudeko also enthused.

Business Hallmark’s findings reveal that all eyes are now turned on the new helmsman of First Bank, Dr. Adesola Adeduntan given its strategic position and the usual burden that are heaped on the cash cow of the entire group.

Looking back, the team, as Onasanya would say, has in the last six years grown the Group’s total assets from a paltry figure of N2.009trillion in 2009, representing about 116 per cent to N4.342trillion in 2014.

Similarly, its profit after tax has leapt by 559 per cent to N82.838billion in 2014 from N12.569billion in 2009 while gross earnings rose by 120 per cent to N480billion in 2014 from N217billion in 2009.

The new MD Dr. Adesola Kazeem Adeduntan (FCA) was appointed to the Board in 2014 as Chief Financial Officer. Before this appointment, he was a Director and the pioneer Chief Financial Officer of Africa Finance Corporation where he made his mark as a top notch manager.

A veterinary doctor from the premier University of Ibadan, he has an eye for details.

These equipped him to effectively serve as Senior Vice-President & Chief Financial Officer of Citibank Nigeria Limited, a Senior Manager in the Financial Services Group of KPMG Professional Services where he managed high profile assurance, financial and risk advisory engagements.

He has garnered diverse expertise in Treasury & Financial Management, Risk Management, Accounting (IFRS)/Auditing/Internal Controls, Corporate Governance, Corporate Strategy Development and Implementation, Corporate Finance, Business Performance Management, Business/Financial Advisory, Investors, Regulators and Rating Agencies Relationship Management, Deployment and Management of Information Technology, and Compliance.

He holds a Master’s Degree in Business Administration (MBA) from the Cranfield University Business School, United Kingdom and has attended executive programmes at Harvard, Cambridge, Oxford and INSEAD.

Sources told Business Hallmark that the new CEO is indeed very well respected in the industry as being quite cerebral, articulate and a stickler for excellence and detail.

‘I worked with him at the AFC and I can confirm that Adeduntan is indeed a very consummate professional who can stand his ground in virtually every area of thought and endeavour,’ one of his former colleagues during his stint at the AFC remarked.

Further checks revealed that the process by which Adeduntan emerged as helmsman of the bank was indeed a most rigorous one.

 It was reportedly a series of three interviews with the first one producing a shortlist of 16, the second shortlist of ten and the third a shortlist of 3. It was from this final basket of 3, that the ex-Citibank executive was then picked by the board of the bank, led by Oba Otudeko.

Adeduntan had exuded confidence as Chief Financial Officer of the bank in his presentation at the Stock Exchange in 2014 during the Group’s Facts behind the Figures;“I think one thing that is very key to what we have already highlighted is that we are the biggest bank and any time we have these regulatory happenings the impact on us tends to be much more severe.

‘’There is not a bank today to have its CRR overrun by N60b like we have highlighted and invariably that is about N55billion of lost revenue. Even if we take up of that and you put it into the equation, you discover that the overall picture wouldn’t be as bad as it is looking”.

“At bank level, we are not projecting any growth on our expenses into 2015 and that will give you an idea of the kind of hard stance with which we are looking at”, Adesola added.

Whereas industry stakeholders are aware of the new changes and have high expectations, Adeduntan has about 90 days to begin to prove himself in a turbulent and traumatic financial system which has lost favour from the global system.

In an operating arena where the economy is already in recession, stiff regulation and tight liquidity, there is a consensus that the opportunity may be very slim for any financial institution to sustain good profit margin.

Market observers therefore, wonder the magic wand that is left for chief executives of banks, including the incoming helmsman of First Bank, Adeduntan to swim against the tide and impress his employers with good returns.

‘’ A very challenging time to run a financial institution, however, it also offers a chance for those, who drive to showcase their big balls”, an analysts who would not want his name mentioned in print said.

Restructuring of Management

As Onasanya, who may soon proceed on terminal leave prepares to take a bow on December, the new Managing Director of First Bank of Nigeria, Dr. Adesola Kazeem Adeduntan, having taken enough tutelage from him is not only adjusting his mental tissues in preparation to straddle the operations of the big bank which has suddenly began to show signs of weakness.

In fact, the restructuring of the management of FBNH has been as strategic as it is eliciting comments from not only corporate quarters but also among shareholders and customers.

Findings by Business Hallmark reveal that the new Managing Director of First Bank of Nigeria, a subsidiary of FBN Holding Company may no longer go with the nomenclature, Group Managing Director (GMD) like Bisi Onasanya since he will be helmsman for only the First Bank of Nigeria limited excluding other subsidiaries of First Bank Group such as FBN UK ltd, FBN Bank Gambia, FBN Bank Ghana and BIC.

THIRD QUARTER RESULT

Whereas the harsh macro-economic environment in Nigeria has not favoured any fantastic performance for profit margins in the third quarter ended September 2015, firms appear to be planning a head. First Bank is not an exception. 

However, the financial institution which grew its gross earnings by 16 per cent to N390billion in 2015 from N333.6billion in 2014 year on year, also recorded a sharp decline in profit after tax by 9.7 per cent from N55.6billion to N50.2billion.

Its weak performance was also reflected in its impairment charges for credit losses which rose by a whopping 249 per cent to 46.6 billion in 2015 from N13.4billion in 2014.

Further details reveal that its total assets was flat as it stood at N4.3 trillion while customer deposits dropped by 1.7 per cent from N3.1 trillion in 2014 to N3.0 trillion. Customer loans and advances also slid by 12.4 per cent year to date to N1.9 trillion from N2.2 trillion in 2014.

The recent weak performance of the once strong bank has not pleased investors who have expressed anxiety over its future in terms of returns at year end and 2016.

Key ratio details are also mixed compared with the previous performance but more on the decline.

• Pre-tax return on average equity of 14.5% (Sept 2014: 20.4%)

• Post-tax return on average equity of 12.2% (Sept 2014: 15.4%)

• Net interest margin of 7.7% (Sept 2014: 7.4%)

• Cost to income ratio of 61.4% (Sept 2014: 65.2%1)

• NPL ratio of 4.8% (Sept 2014: 2.9%)

• Cost of risk 3.0% (Sept 2014: 0.9%)

• 42.5% liquidity ratio (Banking group) (Sept 2014: 41.0%)

• 19.0% Basel 2 CAR (Banking group) (Sept 2014: 20.3%2)

Efforts to speak to FBHN failed as its corporate communications department did not respond to Business Hallmark’s calls and text messages.

However, the concerns of many stakeholders are not only on the restructuring of its management, but what convictions and opportunities are there for the incoming team to revive and restore the full glory of the bank which over the years has reflected its name’ First Bank’ except recently. But some market observers, who have expressed reservation over the recent weak performance of the bank, have fingered the harsh operating environment as First Banks undoing.

A critical observation of the third quarter results of the Deposit Money Bank (DMB) has shown a mixed bag. In an economy which has recorded slide in three successive quarters, expectations will be very modest on performance. This harsh condition have been compounded by the devaluation of the Naira, restriction of access to foreign exchange for importers of 41 items and the latest policy on Treasury single account (TSA) which have prompted tighter regulation. More hazardous is the decline in the price of crude from $114 per barrel last June to hover between $45 and $50 per barrel. These have dealt a heavy blow on business operations as many of them seem to be struggling to survive. Of course, First Bank is not insulated from the choking macro-economic environment, hence the poor performance.

Analysts’ reactions on Change of Guard

Former Managing Director of the defunct A C B International, Emma Nwosu, believes that restructuring is one of the best ways to bounce back when a company is experiencing difficult times. He added that the same goes for countries or nations such as Nigeria which urgently requires that now.

Nwosu noted that there must be a justification for the bank to restructure, though the results may not come immediately. ‘’ There is hope that something good may come out of the restructuring. We just have to be patient with them.

They must have a good reason for restructuring and it may be for the better’’, he said

Also commenting on the issue, Managing Director of HighCap Securities limited, David Adonri, said the appointment of a new management team in First Bank of Nigeria was a sign of confidence in the group which can only be assessed when they have performed.

He noted that shareholders did not enjoy good returns under the leadership of Onasanya.

According to him, returns of First Bank of Nigeria, since Onasanya’s reign has been very low and disappointing.

‘’ We hope that the new people will reverse that. First Bank of Nigeria used to be a trail blazer but it has surrendered its leadership to G T Bank and Zenith Bank’’, said he.

‘’If not that as a chief executive you must serve your tenure, shareholders could have voted to remove the CEO but he had to serve out his tenure. The change in guard will bring a new lease of life to the bank. Their balance sheet value will become robust once again.

The share price will go up and the bank will once again pay dividend and bonus that the bank has a track record of.’’ Mike Ezeh, Managing Director of Crane Securities said.

2014 Balance sheet size….Significantly expanding!

FBNH’s balance sheet is more than the combination of the six other banks in the industry. But, key financial performance indicators are not showing much advantage compared with the smaller banks.

The holding structured bank cost to income ratio is as high as any other marginal players in the banking space for financial year 2014.

The Bank cost to income ratio berthed at 66.6% in 2014, from 62.5% in the corresponding year while cost of funds at 3.8% is just fine, the first mover advantage coming from years of experience as deposit money bank.

The Group, in its presentation, acknowledged that the cost to income ratio actually jumped from 52.7% to 66.7%.

This is essentially due to an increase in regulatory costs, AMCON costs. AMCON levies actually increased by about 23% jumping to N17 billion while our non- performing loans (NPLs) grew by 17% to about N18 billion. Regulatory costs alone jumped to N30 billion.

Though the cost of risk edged up by 10 basis points to 1% from 0.9% in 2013, it remains the best the industry witnessed as its net margin dropped from 17.8% to 17.2%.

Profit…helped by reduced tax

The Holding’s financial service hub bottom line growth was vague, helped by more than 50% decrease in tax payment. Pretax profit on ordinary business activities moved up miniscule at 1.7% from N91.3 billion to N92.9 billion. Meanwhile, profit after tax jumped by 17.3% to N82.8 billion from N70.6 billion on account of the reduced tax payment other than on improved performance.

Noteworthy is the fact that the Group enjoyed significant unutilised capital allowance and this enabled the bank to achieve very low effective tax rate.

Having used that big chunk, the Group said it is not expecting that significant capital allowances to reoccur, perhaps in 2015.

That is another way to say that FBNH N4 trillion assets yield N82 billion as profit available to the shareholders. Even with the bonus, 10 % annual dividend yield is not attractive for investors holding 32.6 billion shares.

It however, recorded about 66.12% increment in non-interest income from N67.3 billion in 2013 to N111.8 billion in 2014.

In the first quarter 2015, non-interest income went up by 52.45% to N29.26 billion from the corresponding year. The surge was powered by foreign exchange transactions gains.

Investors are watching…to buy; to sell

The payout ratio signifies the holding company intention to plough back profit into the Group, perhaps to shore up the lax Basel II Capital Adequacy Requirement (CAR).

That is, the board is aware of the bank adequacy ratio, which at 16.7% is vulnerable against regulatory benchmark of 15%. However, at the bank level, CAR berthed at 15.8%, 0.8% above the CBN’s minimum requirement.

Analysts feel that the Holding company needs to go to market to issue incremental equity.

The need for additional capital to shore up its position might have been sole reason why such meager dividend payout ensued as Chief Financial Officer, Adesola Adeduntan, hammered that the need for the Group to improve and enhance retention rate.

Analysts said by paying 10 kobo the bank is essentially paying out just 3.9% of its earnings per share of 255 kobo. This puts the bank at risk at defaulting and as such further cash dividends payment could just see them fall below the 15% band. In 2004, FBN paid N1.60 as dividend, which is the peaked payment it has made since year 2000.

Four years later, N0.10 was offered as it had done in 2009.

In 2012, FBN paid N1.00 as dividend and in some of these periods script bonuses were offered. Its dividend characteristics dated to early years has not been that attractive even while the market price for its stock is currently below N10.

In the period, the drum beat for credit losses caused a jump in impairment charge; thus it wreaked havoc to the supposed beautiful financial scorecard.

FBNH recorded a 27.7% increase in credit impairment charge due from seemingly bad credit.

BY OKEY ONYENWEAKU