Moody’s gives thumbs up to FBN Holdings on NPL reduction to 14.5%

FBN Holdings (FBNH), the parent company of First Bank of Nigeria Limited, has been applauded by Moody’s Investors Service, an American credit rating agency, for driving down its non-performing loan (NPL) ratio to 14.5 percent.

“The decline is credit positive because it shows the bank is making progress cleaning up its balance sheet, which will support its solvency,” Moody’s said in its financial institution report dated July 30, 2019.

According to the second quarter report of FBN Holdings as analysed by BusinessDay, its NPL ratio, mainly from First Bank, declined by 10.8 percentage points from 25.3 percent in the first quarter 2019 to 14.5 percent, which is also 11.4 percentage points lower than the 25.9 percent reported in 2018.

Although still high, FBNH’S problem loans have dropped by 49 percent since the end of 2018 to about N273 billion after the bank wrote off N127 billion worth of loans that were fully provisioned coupled with some NPLS that were recovered.

“First Bank’s NPLS are concentrated among a few borrowers, with the top five defaulters accounting for

about 35 percent of the total, after writing off some of the large bad loans. As a result, reaching workout agreements with just a few defaulters can significantly reduce the ratio,” Moody’s said in the report released Monday.

FBN Holdings is targeting an NPL ratio of lower than 10 percent by the end of 2019. The bank’s asset quality deteriorated sharply after the oil price collapse in 2015 and recession in Nigeria in 2016. In the period, the bank reported NPLS of 18.1 percent at the end of 2015 from 3.9 percent in the first quarter of that year.

Since then, the bank has struggled to reduce its NPLS and FBNH’S quarterly NPLS averaged 19.3 percent of gross loans between the first quarter of 2015 and the first quarter of 2019.

At the end of the first half of 2019, Firstbank Holdings of Nigeria reported a profit before tax of N39.9 billion. This was an increase of 2.6 percent over N38.9 billion made a year ago.

In the six-month period ended June 30, 2019, gross earnings of FBHN stood at N294.2 billion, up 0.3 percent year-on-year from N293.3 billion in the corresponding period of 2018.

•Continues online at www.businessday.ng