Nigeria’s largest bank by assets, FBN Holdings Plc, is a solid profits generating lender despite the challenging year that 2015 was.
First Bank’s strong fundamentals arise from its dominant position in Nigeria that allows it to mobilise cheap deposits, and numerous channels from which it can generate profits.
A glimpse of this underlying strength was seen in FBNHs Full Year 2015 results when the lender recorded gross earnings of N505b, the highest in the industry.
Investors and analysts usually pay keen attention to FBNH’s earnings reports as a signal of the overall strength of the Nigerian banking sector.
“We note that while operating profit grew by 19% YoY in 2015 (exceeding the 6% and 8% YoY growth delivered by Zenith and GTB), 85% of the operating profit was eroded by impairment charges,” Adesoji Solanke, Sub-Saharan Africa Banking Analyst at Renaissance Capital said, in a note following the release of FBNH, FY 2015 results.
The huge impairment charges taken by First Bank, which affected profitability in 2015 is positive for the lender going forward, as management moves ahead with plans to clean up its books.
Other positives in the FY 2015 results include costs which were down 7 percent.
The cost to income ratio (CIR) which is a measure of efficiency also improved to 57 percent in FY15 from 69 percent in FY14 as operating expenses fell 5.6 percent to N223 billion from N236 billion.
Net Interest Margins (NIM) improved in the fourth quarter of 2015 due to a 130 basis points (bpts) reduction in funding cost and 30 bpts improvement in asset yields.
Consequently, 2015 NIM came in at 8.6 percent compared to 7.1 percent in 3Q15.
The lenders Basel 2 capital adequacy ratio (CAR) came in at 17.2 percent a 200 basis points buffer above regulatory requirements of 15 percent, while the liquidity ratio stands at 58.6 percent.
This means that FBNH may not need to raise any tier one capital this year, which might have diluted shareholders.“We continuously evaluate it and the position now is that there’s no need for external capital,” said Adesola Adeduntan, chief executive officer of First Bank of Nigeria, in a recent interview.
“We generate enough internal capital,” Adeduntan said.
In the first quarter of 2016 First Bank recorded profit after tax of N20 billion, despite the still tough macro environment, a sign of the earnings resilience of the bank.
Net-interest margins moved up to 8.1 percent, compared to 6.9 percent in March 2015, cost to income ratio was 59.4 percent, compared to 65.1 percent in March 2015 and the liquidity ratio improved to 58.2 percent, compared to 41 percent in March 2015.
Banking sources tell BusinessDay that First Banks headcount reduced in the last one year from over 8,000 to about 7000, which was achieved through job realignment and optimisation of resources to a more core functions of banking.
The focus, the sources say, is to reposition the bank (to be one of the most profitable in the country and sub- Sahara Africa), for improved stakeholder’s returns through improved risk and control management with the implementation of enterprise risk management (ERM) and enterprise resource planning (ERP).
“Building on the improvement recorded at the end of FY 2015, in our core efficiency ratio (cost to income) we are focused on driving further efficiency gains and entrenching operational excellence across all our operating companies.
“We will continue to streamline our business and focus on improving our risk management practices and containing costs. We will leverage the strength of our business model by maximising our synergies and cross-selling initiatives,” UK Eke, the group managing director said.
Source: BusinessDay
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