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FBNH: Strong Performance Amid Adverse Macro Conditions

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To survive the stringent regulatory environment and macroeconomic headwinds, Chief Executive Officers of Nigerian banks and their teams have to, as a matter of urgency, think outside the box and come out with ideas that will help maximise the wealth of shareholders and stakeholders, the paramount reasons firms exist.

The economic slowdown caused by the coronavirus pandemic does not support more loan disbursement by lenders, and the consequent or ensuing bad loans surge casts a pall over future earnings.

One entity that has been able to ride out of the storm and remain unscathed while ensuring that its owners drink wine from flagons poured into golden goblets is FBN Holdings Plc, one the largest lenders in Africa’s largest economy.

FBN Holdings (FBHN) Plc uses all available resources and innovation to magnify earnings, and an excellent risk management strategy and efficient portfolio allocation are responsible for good asset quality.

Investment in New Technology and Cost Savings Underpins Profit Amid Covid-19 Crisis

The lender is focusing on optimizing the distribution network to enhance profit while it further institutes cost optimization measures.

It undertakes 130 million electronic-banking transactions processed per month, and its digital channels are attracting more users.

In the last nine years, First Bank Nigeria Holdings has realized N640 billion in fees and commission income, and a breakdown of the figure shows fees and commission income increased by 24.15 percent to N103.25 billion in the period under review (Dec 2020) as against N82.89 billion the previous year.

Net interest revenue, which comprise of transaction fees, insufficient funds (NSF) fees, annual fees, monthly account service charges, inactivity fees, check and deposit slip fees, followed the same growth trajectory as it spiked by 21.86 percent to N168.02 billion in December 2020 from N137.88 billion the previous year.

The growth in electronic transactions helped make up for receding interest income as the lender delivered uptick at the bottom line (profit).

Net income increased by 8.20 percent to N79.70 billion in the period under review as against N73.66 billion the previous year. Pretax profit followed the same growth as it was up 3.78 percent to N78.11 billion as at December 2020 from N75.26 billion the previous year.

However, as a result of the low interest rate environment, central bank’s dovish policy, and increased sterilization of excess liquidity using Cash Reserve Ratio (CRR), interest income was pressured.

Interest income on loans and advances were down 10.50 percent to N386.57 billion in the period under review from N431.93 billion the previous year.

Net interest margin, which measures the difference between interest received and interest paid, fell to 4 percent in December 2020 as against 4.10 percent as at December 2019.

Despite the high inflationary environment and the devaluation of the currency, the lender’s total operating expenses were up a mere 1.50 percent to N295.88 billion as at December 2020, which is lower than the 15.75 percent December inflation figure.

A breakdown of total expense figure shows staff cost moved by 6.15 percent to N101.25 billion in the period under review as against N95.87 billion as at December 2019 while other operating expenses were flat at N195 billion in the period under review.

The banking industry was served a cocktail of woes in 2020 as lenders lost money as the decision of the central bank to bar non-financial firms from its Open Market Operations (OMO) and a cut to Monetary Policy Rate sent net treasury yields crashing.

Nigerian Banks Face Hurdles

The outbreak of the coronavirus pandemic triggered currency devaluation, oil market crash, halted business activities and worsened asset quality.

As a result, Non-Performing Loans (NPLs) of banks have increased significantly due to exposure to some of the hardest hit sectors, especially oil and gas, manufacturing, and trade and general commerce.

Banks are susceptible to rising impairment losses due to huge write off caused by the coronavirus pandemic that hindered many valued customers from meeting their obligations. The guidelines on IFRS 9 are expected to bloat loan loss expenses.

Global Credit Ratings Affirms A’ and A2 Ratings on First Bank Nigeria

Global Credit Ratings (GCR) has affirmed A’ long term and A2’ short term ratings scale with positive outlook on FirstBank Limited, a fully owned subsidiary of FBN Holdings (FBNH).

The accorded ratings take into consideration First Bank of Nigeria Limited’s (“FirstBank” or “the bank”) well-established franchise, significant domestic market share, and status as a systemically important bank in Nigeria.

The ratings also reflect the notable improvement in asset quality and profitability metrics, adequate liquidity, as well as its stable funding structure.

In addition, cognisance is taken of the elevated risk in the macroeconomic environment, aggravated by the challenges and uncertainties arising from the COVID-19 pandemic.

First Bank Nigeria Deepens Financial Inclusion

The lender is deepening financial inclusion while contemporaneously ensuring that banking services reach the unbanked in the rural areas.

The Bank’s Firstmonie wallet platform had over four million customers and a spread of agent networks that was expected to grow to 50,000 in 2019.

The wallet had a transformational impact on reaching low-income and historically unbanked households in Nigeria.

After a successful roll out of the Firstmonie agent network in 2018, the business has grown to a network of over 22,000 agents processing over $490m worth of transactions in monthly value and a unique transaction count of 10 million monthly.

The 2018 data by EFInA put Nigeria’s financial inclusion rate at 63.2 percent, meaning that as much 36.8 percent or about 40 million adults still lack access.

The Central Bank of Nigeria (CBN) had said the country would not meet the 80 percent penetration target by end of 2020, and that the current macroeconomic fundamental may not support its drive towards shrinking the exclusion gap.

Not only was the country not meeting its targets, but it was also declining in growth. For instance, while Nigeria achieved an inclusion rate of 60.3 percent in 2012, it declined to 58.4 percent in 2016 against a target of 69.5 percent translating to financial exclusion of about 41.6 percent.

The Bottom-line

FBN Holdings is uniquely positioned to ride the wave of macro-economic uncertainty following a difficult 2020 for the global economy and commodity producers like Nigeria.

As the economy recovers in 2021 with rapid rollout of vaccines, FBN Holdings massive earnings power, balance sheet and unmatched reach across Nigeria, will position it as the main financial services firm set to ride the economic recovery while generating solid returns and earnings.

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