FBN Holdings Retains Its Dominance

FBN Holdings, a leading financial group with huge and far-flung assets, is still dominant in the area financial intermediation despite the stiff competition, writes Goddy Egene

FBN Holdings Plc, which is the holding company of First Bank of Nigeria Limited and other subsidiaries operating in sectors of the financial sector, has declared a cash dividend and bonus shares for the 2014. Although it is always a good news for shareholders to receive double returns on their investments, many shareholders of FBN Holdings did not expect a bonus issue. In fact, a shareholder of FBN Holdings, Mr. Godwin Anono told THISDAY that the bonus shares declared by the company would create more challenges going forward. According to him, the bonus issue would further expand its equity base. As at December 31, 2014, FBN Holdings had total 32.632 billion ordinary shares. This implies that for the bank to declare a dividend of N1.50 per share and still retain some earnings for further growth,it must end the year with significant profit. Given the challenging operating environment, this will be a Herculean task, hence a shareholder like Anono said increasing the number shares through a bonus share unnecessary at this point.

However, considering the performance of the bank for 2014, it is still dominating. But with tough competition the board and management of FBN Holdings need to work harder in order to maximise the huge potential of the financial institution.

The institute is over 100 years old and boasts of the highest assets base. It is also the leader in terms of savings deposits. However, these advantages have not been well maximised.

2014 financials Results

FBN Holdings ended 2014 with gross earnings of N489.6billion, up 21.3 per cent, from N396.2 billion recorded in 2013.Non-interest income jumped by 66.1 per cent from N67.3 billion to N111.8 billion, while operating income grew by 19.8 per cent to N355 billion, from N296.4 billion.

Impairment charge for credit losses of rose by 27.7 per cent from N20.3 billion to N25.9 billion. Operating expenses also went up by 27.5 per cent from N185.8 billion to N236.8 billion. Profit before tax(PBT) stood at N92 billion, showing a marginal growth of 1.7 per cent from N92.3 billion, while PAT grew by 17 per cent from N70.6 billion to N82.8 billion.

An analysis of the balance sheet of FBN Holdings show that total assets grew by 12.2 per cent to N4.3 trillion, up from N3.9 trillion. Customer deposits stood at N3.1 trillion, compared with N2.9 trillion in 2013, while customer loans and advances went up to N2.2 trillion from N1.8 trillion.

In terms of ratio, pre-tax return on average equity fell from 20 per cent to 18.7 per cent, just as post-tax improved from 15.5 per cent to 16.7 per cent. Net interest margin stood at 7.6 per cent, compared to 8.0 per cent, while cost to income ratio was 66.7 per cent, up from 62.7 per cent. Non-performing loan ratio improved from 3.0 per cent to 2.9 per cent.

Chief Executive Officer’s Comments

Commenting on the results, Group Chief Executive Officer of FBN Holdings, Bello Maccido, said: “The Group recorded a strong financial performance in 2014, in spite of the highly challenging operating environment particularly for our flagship business, First Bank of Nigeria. As such, the performance by the Banking Group is a testament to the underlying strength of our commercial banking business which is built on an extensive retail network and a robust information technology platform. Notwithstanding the tough operating environment, the Group showed commendable growth across all the key performance indicators buoyed by the complementary performance of our non-bank subsidiaries with gross earnings growing by 21.3 per cent to N480.6 billion and PBTb N92.9 billion.”

According to Maccido, “we remain focused on diversifying our revenue streams through the extraction of value from our recent bank acquisitions, consolidating our position in the investment banking space, especially with the acquisition of Kakawa, and expanding our insurance business scope. Our investment in technology, human capital and portfolio expansion are beginning to shape the long-term fundamentals of the Group and will deliver a positive return on investment over the longer term. However, in the short to medium term we continue to ensure our business remains as resilient as can be to the shifts in the regulatory and macro-economic environment; shore up our risk management processes;and, drive efficiencies across the Group.” Also commenting omthe results for the Commercial Banking Group, GMD/CEO of First Bank of Nigeria Limited, Bisi Onasanya said:“The financial year 2014 witnessed many activities in monetary and fiscal policies due to the monetary tightening stance of the Central Bank of Nigeria (CBN). Notwithstanding the impact of these policies on our business, First Bank of Nigeria delivered strong results with Gross earnings growing by 22.1 per cent to N455.4billion and PBT increasing by 9.1 per cent to N94.5 billion”.

“In response to the regulatory changes and business environment, we revised the Bank’s operating model to ensure strategic realignment and optimal use of available resources to take advantage of the increasing growth opportunities in retail banking. Although FirstBank remains the biggest bank by balance sheet size in subSaharanAfrica, our focus in coming periods will be to optimize our resources towards improved efficiency and profitability rather than size. We are confident that FirstBank is well positioned to drive targeted improvement and reinforce our appeal as the Bank of first choice.”

Increasing Operating Expenses

Operating expenses rose by 27.5 per cent to N236.8 billion, up from N185.8 billion in 2013. This was driven primarily by staff cost, which rose by 21.3 per cent to N79.8 billion. Regulatory cost also went up by 21 per cent to N30.2 billion.

According to FBN Holdings, staff cost, which make up 33.9 per cent ( 35.5 per cent in 2013) of operating expenses grew 21.3 per cent as a result of an increase (641 staff) in the number of staff across the Group and following the acquisition of Oasis (+34), Kakawa Discount House (+73) and FBN Senegal (+68), aligning the compensation structure of the acquired West African subsidiaries with that of the FBN Group as well as promotion of staff across the FBN Group legacy businesses.

“There were no increases in staff salaries during the year. Headcount across the Group closed at 10,463 with 94 per cent of personnel allocated to the Banking Group. 87.8 per cent of the global staff work from Nigeria, 5.4 per cent from the DRC, 1.5 per cent from Europe and the balance of 5.3 per cent from the West African subsidiaries including the representative offices across the globe. We are critically reviewing staff cost with the aim of increasing the efficiency and productivity per staff. We are realigning the proportion of market facing to back office personnel;ensuring appropriate manning levels for all functions; and, re-evaluating the required number of staff to carry out various tasks across the Group,” the bank said.

Explaining the 27.7 per cent growth in net impairment charge o credit losses, the bank said it was essentially driven by recognition of impairment in some small to medium sized exposures to fast track remedial action in line with the delinquency management/loan workout process to prevent future deterioration in some already impaired accounts.

“As such, the proportion of collective impairment on the impairment on loans to customers moved up to 14.9 per cent from 5.0 per cent in 2013. Consequently, cost of risk increased marginally to 1.3 per cent (1.2 per cent in 2013). We are focusing on being more selective and on having tighter risk acceptance criteria. We have put in place a more proactive document administration, collateral management, credit monitoring and collection support through our newly created middle office, portfolio tracking for prompt identification of early warning signs of deterioration in the portfolio, revamped remedial and recovery process with increased senior management involvement, in addition to re-instituting a more conscious risk environment through training, coaching and stricter sanctions for non-performance,” the bank said.

Growth in Assets

Total assets increased by 12.2 per cent N4.3 trillion driven by growth in lending activities. Interest earning assetsgrew by 11.4 per cent. Notwithstanding, as a proportion of total assets, interest earning assets were flat at 78 per cent in spite of growth in total assets. This was largely due to a 65 per cent growth in mandatory reserve deposits, which rose from N341 billion to N564 billion following increased cash reserve ratios during the year.

Total customer deposits grew by 4.2 per cent to N3.1 trillion, from N2.9 trillion. “During the year, public sector deposits (current and domiciliary) decreased by 39 per cent to N424.2 billion due to a strategic and concerted effort to re-price these deposits to reflect the actual impact on our business as well as increased operational use of the funds by underlying beneficiaries. Public sector deposits now represent 16.6 per cent of total deposits ( 27.5 per cent in 2013 ). The need to re-price public sector deposits follows the increase in the cash reserve ratio on public sector funds in addition to implementation of the planned Treasury Singe Account (TSA). Retail deposits, up 17.8 per cent to N1.5 trillion at year end, now constitute 57.3 per cent ( 48.7per cent in 2013) of the bank’s total customer deposits while deposits from corporate and institutional customers make up 19.6 per cent. First Bank’s savings deposits constituted 23.9 per cent of the to deposits (22.7per cent in 2013).

“The Group continues to enjoy access to low-cost deposits which ensures cheap and sustainable deposits to support the business. Low-cost deposits constitute 75.9 per cent of FirstBank deposits and 65.3 per cent of total Group’s deposits. Our overall strategic intent is to have an efficiently balanced deposit mix, in line with the evolving business environment,to ensure optimal use of available resources. Thus, we have deepened coverage in our retail business,” the bank said.