FBNH Plc: “The taste of an old wine”

In the financial service segment, First Bank of Nigeria Holdings has rich history of performance, survival. FBNH Plc, a non-operating financial holding company of one of the largest banking and financial services organisation grew total assets to N5.670 trillion from N5.568 trillion at the beginning of the year.

This translated to about 2% growth in balance sheet size as its total equity hit N560.9 billion, increased by 5.7% year on year from N530 billion at the beginning of the year. Looking at the numbers, there seems to be deliberate effort to reduce activities and increase balance sheet efficiency.

However, reported growth in shareholders’ funds signal strong investors’ confidence in the future streams of income that would accrue to the holdings. But it stock is largely under price, equity analysts told MarketForces.

The financial service group performance is affected by high operating cost, as proportion of cost to income settled at 70.5% in the first half.

What this means is that the holdings expended more than N70 on every N100 it generated in the first half. Analysts are of the view that its operating cost is high compare to Tier 1 average. Though cost of funds is within similar range among the Big “5” banks.

At N193.834 billion, FBNH is 8th largest stock by market capitalisation on the floor Nigerian Stock Exchange. Meanwhile, the stock year to date performance has not been impressive. Then again, many of the banking stocks have performed miserably in 2019 due to persistent bearish moves.

Analysts said they are expecting to see improve results going forward. They noted that there have been substantial improvements as the group embarked on balance sheet repair and repositioning.

Some equity analysts said they have adjusted their estimates on the back of significant improvement in asset quality with Atlantic Energy fully written off – the group largest legacy non-performing loan.

While non-performing loans closed the first half at 14.5%, it was followed by elevated cost of risk at 2.2% though impairment charge on credit losses went down significantly to N22.1 billion from N52.8 billion. The group NPL guidance for 2019 is 10%.

Further analysis shows that for five quarters consecutively, cost of risk has been on a decline from 4.7% in the first half 2018, down the line it settled at 2.2% at the end of first half 2019.

At the analysts’ conference call, the management however stated that they expect to achieve single-digit NPL ratio by end of 2019 through recoveries, restructure, write-offs and new loans to be created.

FBNH total deposits remain relatively high and still growing. The fair value of the group deposits account was about N4 trillion, which signposts a positive sentiment towards the holding financial institution.

MarketForces report on FBN across the counters revealed that some customers also agree that restructuring effort is showing in the banking halls.

It was gathered from market research conducted that unlike in the past, FBN banking halls is now showing ambience, convenient and cleanliness.

The report stressed that its members of staff are also showing strong professional traits in their conducts, relationship managers are more willing to help customers to meeting their needs.

Specifically, banking halls at Victoria Island environment were rated high in terms of customers services. In the mainland, positive comments douse negative ones given the way officers were attending to customers politely.

In Ibadan, MarketForces research team reported that they saw friendliness across the banking halls. It was reported that some banking halls are still crowded in Lagos, as an example Alaba market and Ojodu, in Lagos.

Ogochi Ndubuisi, the team lead for the market research assignment said: “Overall, we would like to rank FBN customers services high this week. Having observed that there is a deliberate effort to ensure that customers are treated well”.

What informed equity analysts rating?

After the release of its first half of 2019, quite a number of equity analysts rated FBNH stock a BUY. Though, its financial performance came weak than expected.

Obviously, expectation is generally high from investment perspective, as analyst commended management decision to write off its margin-dilutive legacy asset.

This is expected to impact profitability in the second half in 2019. By estimate, the holding’s profit after tax is expected to hit about N70 billion in 2019.

Earnings, growth 

Analysis of its first half 2019 shows that gross earnings nosedived, albeit very marginal at 0.5% year on year. This was on account of 1.6% reduction in interest income, which was also a derivative of a decline in yield from interest earnings assets.

The decline was attributed to falling yield from fixed income market and other interest earnings assets. In the last 10 years, FBNH gross earnings increased by 8.57% annually.

The holdings’ total assets grew at 9.52% on the average during the periods under review.  Customers’ deposits ballooned at an average of 9.68%, while pretax profit grew by 15.64% in the coverage period to 2018.

In the period, gross earnings berthed at N285.3 billion as against N286.4 billion in the comparable period in 2018.

The group earned N221.8 billion as interest income, as against N285.7 billion in first half 2018.Thus interest expense went down 0.9% from N75.8 billion to N75.1 billion.

It means that FBNH paid N33.85 on every N100 earned as interest income in the first half 2018 as against N33.63 in the comparable period in 2018. Fierce competition with rivals in the sector jostling for customers’ wallets.

In its audited financial statement for 2018, total customers deposits pitched at N3.486 trillion and estimated to hit N3.59 trillion in 2019. Surprisingly, at the end of the first half in 2019, total deposits hit N3.582 trillion.

Performance in a decade

In the review of its last 10 years performance scorecard, FBNH Plc grew total assets by N3.568 trillion, from N2 trillion in 2009 to N5.568 trillion at the end of financial year 2018. In the first half 2019, total assets clocked N5.67 trillion.

In the first half of financial year 2019, FBNH incurred more than N70 on every N100 income the holding generated. This was far higher than the amount incurred on operating income in similar period in 2018. The bank had incurred N56.50 on every N100 it earned.

It would be recalled that FBNH’s strategic planning program for financial year 2019 is anchored on three pillars which include asset qualities, enhancing revenue generation and also improving balance sheet and operational efficiencies.


PanAfrican Capital in its valuation puts the target price of the stock at N7.76, representing an increase of 50.63% from the current price range.

The analysts then maintained a BUY recommendation on the stock. It said the valuation and forecasts considered several factors, including its footprint in the industry and the bank’s plan to reduce impairment charges.

Analysts at PAC think that in terms of assets utilization, loans loss expenses as percentage of profit after tax is expected to improve significantly from 145.47% in 2018 to 83% in 2019.

In the first half, the holdings recorded a 53% loans to deposits ratio, which means FBNH would require to book loans in order to meet 60% benchmark.

However, the management has stated that the bank has flexibility to book more loans.

Then, Coronation Merchant Bank, CMB, noted that FBNH was unable to keep operating expenses at bay in the first half as cost to income ratio jerked up 1399 basis points to 70.5%.

The analysts however reckoned that the 24% increase in operating expenses was influenced by 22% increase in regulatory cost along with advertising and promotion cost.

CMB estimated a target price of N12.50 per share for FBNH and given the potential upside relative to current price, it also maintained BUY rating on the stock”.

Would FBNH do acquisition of FINTECH Channel?

MarketForces Africa learned from industry sources that FBNH is planning to acquire FINTECH channels for its digital penetration as way to strengthening earnings. Some industry’s observers agreed that this may be necessary for the holdings to expand sources of income, but FBNH debunk the idea.

Folake Ani-Mumuney, Global Head Marketing & Corporate Communication however told MarketForces that FBNH has not announced any acquisition.

Ani-Mumuney said: “We have always been at the forefront of technology adoption and invest continuously in our infrastructure to ensure we stay ahead of the curve to enabling our customers’ bank easier”.

“We therefore remain open to all opportunities evaluated against our business strategy and imperatives. Where there is alignment, we deem it right to seize such opportunities whether on our own or by collaboration and in partnership with others. As of now though, we have not announced any acquisition”, she added.

Speaking at the first half earnings conference, U.K Eke, the Group Managing Director FBNH Plc said: “We don’t want to run an inefficient balance sheet”.

FBNH has lived long enough, and it remains one of the financial institutions that can weather the storm irrespective of direction it is coming from, Kingsley Ezoh, Senior Consultant with LSintelligence said.

According to Ezoh, high operating cost is eating into profit. The group annual impairment charge against income statement is big enough to cover some banks profits and quite high operating expenses.

On the group ballooned operating cost, the management said: “We believe that we have a clear focus on the cost drivers. We understand what is driving the cost. If you imagine the investments we’re making on digital platforms.

Regulatory cost is eating into the group income, the higher the balance sheet size, the more the annual payment to Asset Management Corporation sinking fund.

The management said: “That we had to make some payments related to legacy AMCON issues, on accounts that we transferred, also on account of the growing balance sheet size, our elevated regulatory costs and also some costs that within one-off brand-related costs we incurred during the period under review.

“But clearly, we believe that the investments we are making are important for future growth. We believe that sustainability of our business is important. And we believe that we don’t have to sacrifice efficiency on the altar of immediate profits; that is what is driving our investments in organic channels”.

In his reaction to  escalating cost, Patrick Iyamabo, Chief Finance Officer, First Bank of Nigeria Limited & Group Executive  said  with respect to the human capital optimization, a chunk of that spend was in respect incentivizing a target staff to consider early retirement, and that was funded.

FBNH: A Rich history of performance, survival

FBN Holdings Plc. is the non-operating financial holding company of one of the largest banking and financial services organisation 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 at its beckon about 20 million active accounts, with N3.582 trillion in total deposit from customers.

In 1894, FBN commenced business, the time when Nigeria was under British colony. FBN was then primarily finance foreign trade, with little lending to Nigerians. After independence, FBN started lending to Nigerians as New Bank of West Africa.

In 1965, the first bank in Nigeria was acquired by Standard Bank – a British Oversees bank – this resulted to change of name to Standard Bank of West Africa.

Four years after, 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. After war, government sought local control of retail banking sector.

This forced Standard Bank of Nigeria to reduce stake to 38% while Nigerians became majority shareholders. Standard Bank 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. Then, following its listing on the Nigerian Stock of Exchange, in 1990 the name of the bank carried “Plc” for the first time.

First Bank of Nigeria has survived all manners of wars in the last 125 years. From World War 1 & 2, to the civil war in Nigeria between 1967 and 1970, a year before the bank extended shareholding to the locals. Beyond these, the First Bank outlived various corporate driven troubles since 1930.

It is not many operators that were able to weather storm through major financial crisis that swept the global economy as well as local market since 1930. This was the year that registered the first banking crisis in Nigeria, followed by another in 1950.

In 1994, FBN survived again, as 32 banks were liquidated by the Nigerian Deposits Insurance Corporation, following the banking crisis of 1993 which significantly affected going concern assumption of some of its peers in the sector.

The last of the crisis the bank witnessed so far was in 2009. Not many are able to live to tell their stories.

FBNH Plc: “The taste of an old wine”

VIAJulius Alagbe
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