By JULIUS ALAGBE
This week, Nigeria’s premier banking group, FBHN rolls out the drums in celebration of success and remarkable longevity. At 125 years old, it logs an intimidating profile, merely on the basis of its staying power. Its older than the Nigerian nation, including every Nigerian, and arguably older than every other corporate organization trading on the Nigerian Stock Exchange (NSE).
In an ecosystem of high mortality rate and even higher corporate mortality rate, FBHN record is quite remarkable.
However, it is not merely survival that has made it a remarkable institution, rather its various continued successes across a broad spectrum of financial services, underpinned by cutting edge customer services and an activist corporate social responsibility have made FBNH the indisputable leader of the highly competitive Nigerian banking sector. In this special report, Business Hallmark reveals that despite the wear and tear, the venerable lender is strong, alluring and still packs a punch…!
Looking back in Nostalgia
First Bank is currently 125 years old no doubt. But for perspective, we will begin with the more recent past. In the last 10 years, FBNH Plc has been able to grow gross earnings by 8.57% annually. Thus the holdings’ total assets grew at 9.52% on the average during the period under review. Within this period, customers’ deposits in its vaults ballooned at an average of 9.68% annually, while pretax profit grew at 15.64% on the average.
Unfortunately however, there are also other less exciting numbers for the same period, top of which would be the staggering weight of its non-performing loans. Indeed, this NPLs profile has been quite unflattering, and a situation that successive managers have been battling to bring down for years now but which is yet to abate. For example, the non-performing loans ratio was still locked at 19.8% as at the end of its 9-months result in 2018, which means that for every N100 in gross loans disbursed, about one-fifth stood a real risk of outright default.
Perhaps it is for this reason that the bank has become increasingly lukewarm about creating new credit risk. As a result, there has been a corresponding shift away from loan booking. This has correspondingly affected its interest earnings assets which went down as net loans declined by about 4% from the amount brought forward into 2018.
Meanwhile, and underscoring the point that a spirited fight is still on internally to tame the monster, FBNH’s NPL ratio as at financial year 2017 had berthed at 22.8%, which suggests that the current decline in net loans advances may be part of a deliberate effort to improve the bank’s asset quality. However, it is not winning on all fronts as the group’s cost to income ratio has clocked 59.5% presently, as against the 58% guidance for the year. It means that it will now cost the group about 60% on every N100 income to ‘make a buck.’ Invariably therefore, FBNH is yet operating at a cost disadvantage in comparison with its peers in the same class.
While men slept….
One area that further exposes the fact that the old behemoth may have lost some of its initial fighting edge to the factors of ageing and attrition can be seen from its assets growth position in more recent years. Here, a careful review of its performance records for the last 10 years reveals that it grew total assets by N3.236 trillion, from N2 trillion in 2009 to N5.236 trillion at the end of 9-months to year end 2018.
Conversely however, in less than five years, the Zenith Bank group added as much as N2.7 trillion to its asset portfolio. Further, when the ongoing M&A process involving Access Bank Plc and Diamond Bank Plc is concluded, FBNH will be equally forced to move down the pecking order, perhaps to third place. There are also strong indications that the ranking may shift again with the aggressive growth and profitability projections of its two principal rivals, UBA Plc and GTBank. In that event, it will really be galling for the behemoth as it confronts the very real prospect of being ranked behind these newer generation banks in the Tier 1 class.
As old as Nigeria
They say old wine tastes better with time. But FBNH’s seemingly not-too-salutary competitive stance and challenging performance scorecard in recent years, has proved otherwise. Though still liquid, stable and sturdy, it has continued to underperform stakeholders’ expectations as evidenced in factors such as: lower profits compared to its peers, reduced return on equity which is currently below the industry average and rising non-performing loans.
When it comes to being sturdy and reliable, give it to the group, longevity is the First Bank of Nigeria Holdings'(FBNH) first achievement. Like the marathon runner, having being around for 125 years, there are hurdles that the group has surmounted successfully simply because it made the distance. For example, coming into the same space almost at the same time that peers like John Holt, FBNH has thrived even when John Holt is rather a shadow of itself today. In fact, John Holt has become a caricature of its former old self and is today on life support. The once towering trading octopus has been reduced to a ‘has been.’
Of course, longevity does have its uses. And very clearly, it has helped FBNH in carving out for itself a significant share of the market in the retail end, serving more than 12.5 million accounts today, as the numbers shows. In its unaudited financial statement for the first 9-months in 2018, total customers deposits crossed N3.383 trillion. This compares favourably with its peers and is clearly above the industry average
With footprints across the globe, FBNH has become a definite household name, unarguably the most reliable in the banking sector. At the Nigerian bourse however, the picture is less flattering. After being formally listed on the stock market for about 48 years, FBNH’s share price today is far less exciting to investors. It closed the week at N7.75, and paid only 25 kobo as dividend in 2017.
An analyst who spoke to Business Hallmark on the stock’s outlook said; “FBNH’s shares have not significantly increased in terms of value. In the last 7 years, the bank has not paid more than N1.10 as dividend. Technically, except you are trading the stock, its age has not been advantageous to building an investing portfolio”.
Though the bank is still solid and reveling in the euphoria of its 125th anniversary, the management must begin to ponder over the future of the group if it is still intent on standing out as the undisputed leader of the banking sector. Until recently, its leadership was unequalled in terms of gross income, total assets and loans portfolio. But today, it is struggling to be anywhere near that picture.
However, such poor performance may not be a reflection of the group’s corporate performance, especially given the previous history of the stock. Rather, it may more accurately reflect the generally bearish trend which has been the lot of the market in recent years. However, some analysts believe that all things considered, the stock performance of the group is a tribute to the resilience of the brand in an operating environment that has been less than favourable.
The unpleasant prospects the top pecking order notwithstanding, FBNH Plc remains profitable, though it is clearly not as profitable today as its peers in the Tier 1 class. On an absolute basis for example, it is to its credit that the bank has never returned a negative posting.
On the other flank, the future looks bright as the management is continuing to work on shaking up and rejigging its old cultures. At least, there are notable changes in its banking halls and service delivery systems have improved significantly. Nevertheless, it is still not as comparable as it could be, given that its battles with rejuvenation even date as far back as its landmark ‘Century 2000 project.’ Ambition must really be made ‘of sterner stuff,’ Shakespeare admonished long ago.
Back to today, operating costs and overheads, including heavy impairment charges have continued to impact on its results. The amount the group is expending in managing and maintaining its operations remains very high. The structure is gulping cash, crowded with C-suites executives from its Commercial Banking, Merchant and Capital Banking groups as well as its Insurance group. Personnel costs continue to grow steadily year on year.
Some industry analysts observe that more has to be done as on current form, FBNH is seemingly having to grapple with what they contend is increased number of asset duplications, overlapping job descriptions and overloaded top management, all of which are pushing up operating expenses.
Being around for long is an asset but…
If age means or is considered as being equal to experience, FBHN has it. If experience is a key driver of performance, FBNH has it. But if performance is not comparable to peers results, there is an obvious problem and FBNH needs to put its legs down to run. In other words, if being sturdy and surefooted does not translate to being efficient, effective and very profitable, FBNH should sit down and review its processes holistically and confront the very tough decision of whether the time has not come for it to completely unbundle its Holdco arrangement.
After being around for 125years, FBNH’s total assets as at its first 9-months outlook in 2018 stood at N5.348 trillion, having expanded by 2.1% from the fair value of the Holdings’ total assets that had been locked at N5.236 trillion at the beginning of the year. If an even growth is assumed, it means that at the end of the full year, FBNH is in all likelihood not in position to post more than a composite 2.8% growth in total assets.
Of the sum of its N1.924 trillion loans at the end of 9-month in 2018, 19.8% was seen as non-performing, as against 20.1% at the end of financial year 2017 when its assets in loans berthed at N2.001 trillion.
FBNH’s pretax profit was sliced by as much as 7.4% as it was unable to meaningfully grow its topline. Gross income closed the period at N441.5 billion as against N439.2 billion in the comparable period. It therefore recorded only a miniscule increase year on year.
Though the group increased its interest earning investment securities by more than 21%, it recorded a 12.9% decline in its net interest income position. Invariably, the holdings’ key interest earnings assets were reduced with reasonable expectation that non-interest income would support earnings.
Cost of funds moved up in the 9-month to 2018. It incurred N34.4 on every N100 generated from its portfolio of interest earnings assets. This was higher compared with the N28.57 paid to providers of funds in the corresponding period in 2017.
Thenon-interest income which closed the period at N93.2 billion as against N74 billion in the comparable period, having grown by 26%, was not enough to close the gap in earnings loss due to a reduction in the value of its interest earnings assets.
In the 9-month result, it incurred N59.50 on every N100 income generated. This was far higher than the amount incurred on operating income in similar period in 2017. The bank had incurred N53.4 on every N100 income made. It means that while the banking corporation is micro-managing its operations to reduce, possibly its heavy toxic assets, costs were pushing higher.
Customers deposit closed 9-months of financial year 2018 at N3.384 trillion, increasing by 7.6% from N3.143 trillion at the beginning of the year. The hefty size of its deposit funds, of which a sizeable amount attracted very low costs as a retail bank, made the cost of funds, 3.6%; lower albeit with 100 basis point higher than the score in the previous period which was 3.5%. This is a quite commendable development and signposts better days ahead. If the bank can continue to attract funds at low costs, it will enhance its overall ability to book credit and create bigger and hopefully more rewarding book assets.
How FBNH measures against its peers
FBNH’s gross earning is lesser compared with the amount Zenith Bank Plc made in the last few years. It looks like FBNH has seemingly conceded the industry leadership mantle to new generation banks like Zenith and GTB and perhaps a few more. In about all of the key indicators that seemingly excite investors, the reality is that FBNH today ranks lower.
In its 12-month performance coverage for example, the Zenith group closed the year with total assets valued at N5.955 trillion. In 2016, Zenith Bank’s total assets was at par with the balance sheet value of FBNH total assets, N4.739 trillion and N4.736 trillion respectively. Before 2016, FBNH was the largest bank with total assets locked at N4.166 trillion in 2015. FBNH is now trending behind Zenith and GTB in terms of profitability.
FBNH: A Rich history of survival
FBN Holdings Plc. is the non-operating financial holding company of one of the largest banking and financial services organisations in Africa. A truly diversified financial services Group that offers a broad range of products and services, including commercial banking, merchant banking and asset management and insurance to millions of customers. FBNH has in its hold 12.4 million active accounts, with total deposits from customers put at N3.168 trillion.
In 1894, FBN commenced business at a time when the territory of Nigeria was still under British colonial rule. FBN then primarily financed foreign trade, with little lending to Nigerians. It was after independence that FBN started lending to Nigerians in higher volumes.
In 1965, this first bank in Nigeria was acquired by Standard Bank – a British Overseas bank which resulted to a change of name to Standard Bank of West Africa. Four years later, Standard Bank of West Africa was incorporated in Nigeria as Standard Bank of Nigeria.
In 1971, Standard Bank of Nigeria listed 13% of its shares on the Nigerian Stock Exchange for local participation. Shortly after this, government sought local control of retail banking sector. This forced Standard Bank of Nigeria to reduce its stake to 38% while Nigerians became majority shareholders. Standard Bank’s loss of control triggered the need to change name to capture its local identity.
In 1979, First Bank of Nigeria Limited came alive with more Nigerians as its directors. In 1990, the name of the bank began to carry along with it the “Plc” moniker.
First Bank of Nigeria has survived all manners of wars in the last 125 years. These ranged from World Wars Iand II to the Civil War in Nigeria between 1967 and 1970. Significantly, the latter ended shortly before the bank extended its shareholding more broadly to locals. Beyond these, the First Bank brand has also outlived various incidences of corporate-driven crises that have been witnessed in the economy since the 1930s.
To its basic credit here, not many operators were able to weather the storm through the major financial crises that swept the global economy as well as the local market since 1930, the year which registered the first banking crisis, followed by another banking crisis in 1950.
In 1994, FBN survived another crisis season once again, when32 banks were liquidated by the Nigerian Deposits Insurance Corporation, following the banking crisis of 1993 which significantly affected the going concerns assumptions of some of its peers in the sector. The last of the crises the bank has witnessed so far was in 2009. Not many institutions which entered the market even in the past quarter century in the past have been able to live to tell the story. And for this, we say, kudos, First Bank!
However, mere survival is hardly what the public expect of its flagship banking institution. As the old saying goes, excellence is not an occasional thing; it is an always thing. Or to use a Nigerian lingo, Í get am before no bi property!