FBN Holdings shuns equity raise despite N119b loan loss

By Kelechi Mgboji
Assistant Business Editor
First Bank of Nigeria Holdings (FBNH) has ruled out raising funds from equity market, even after a historic loan loss provision of N119.3 billion.
The tier one bank will retain more capital by keeping loan growth flat to boost capital.
First Bank Group Managing Director and Chief Executive Officer, Urum Eke, said the bank is overhauling its credit model to avoid future loan losses and will diversify towards retail customers.
The bank released its 2015 financial result last week in which 85 per cent of operating profit was eroded by impairment charges.
Gross non-performing loan (NPL) figure of N354 billion in 2015 represented 54 per cent of sector NPLs estimated at N649.63 billion by the Central Bank of Nigeria (CBN).
Even with the NPL ratio at 18 per cent in 2015, up from 3 per cent the previous year, only 40 per cent of the total NPLs was covered by impairment provisions.
Analysts at Renaissance Capital recalled that the last time the bank reported NPLs close to this level was during the consolidation of banks in 2005, when it posted an NPL ratio of 24.5 per cent.
At the peak of the financial crises in 2009, FBN reported an NPL ratio of 8.2 per cent.
Besides, the result showed significant loss of capital, raising speculation that the bank might resort to equity market to shore up capital.
In its audited results for the full year ended December 31, 2015, profit after tax dropped 82 per cent, from N84.0 billion in 2014 to N15.1 billion in 2015.
Despite the sharp decline in profit, the bank proposed a dividend of 15 kobo per share (150 per cent improvement over 2014 dividend payments).
Profit before tax closed the year at N21.5 billion, 77.1 per cent below N94.1 billion recorded in 2014.
The holding company thus gained 4.9 per cent growth in gross earnings to N505.2 billion in 2015 as against N481.8 billion in 2014.
Other key indicators from the balance sheet showed that total assets of FBN Holdings dropped 4.1 per cent to N4.2 trillion in 2015 as against N4.3 trillion in 2014.
Customer deposits dropped to N2.97 trillion, or by 2.6 per cent from N3.1 trillion in 2014. Customer loans and advances (net) stood at N1.8 trillion, down 16 per cent from N2.2 trillion in 2014.
Eke explained that “this has been a very difficult time in the history of our institution. Despite the tough macroeconomic and regulatory head winds during the year, our underlying business remains strong as reflected in the gross earnings growth of 4.9 per cent to N505.2 billion – clearly a leading position in the industry.
“Furthermore, the Holding company platform has provided support in mitigating the impact of credit losses and the vulnerabilities experienced by our commercial banking business.
“In coming periods, our primary focus is to drive efficiency and operational excellence across all operating companies.
“Key initiatives in achieving this, as we eliminate the value eroding factors and seek to reposition the Group towards a new growth path, include enhanced focus on moderating risk appetite, risk management practices and culture; disciplined cost containment; asset optimisation; and synergy realisation.
“We will be sustaining the drive to improve cross sell initiatives, improve performance and returns from our subsidiaries to provide diversified and sustainable revenue for the Group.
Eke said the Group acknowledges its challenges but is committed to achieving its set tasks.
One priority stands out above all else – the need to restore shareholder value while building long-term sustainability into our businesses, he added.