Despite a tough decade, First Bank Nigeria Holdings (FBNH), Nigeria’s oldest financial institution, has shown impressive resilience. The bank has navigated challenges like governance issues, high cost-to-income ratios, poorly balanced loan distributions, large non-performing loans, and risky exposures to smaller banks. This period of difficulty may actually strengthen FBNH, making it more resilient and better managed, especially as it focuses on building management capacity and addressing structural adjustments post-recapitalization.
Recent Developments
Recent public updates indicate that FBNH is working to confirm a new managing director and push forward with recapitalization. The previous management’s efforts should continue to yield benefits, particularly with a review of balances from digital banking, unreconciled transactions, FX-related deposits, and standard loan balances.
Analysts are optimistic, noting that the Central Bank of Nigeria’s (CBN) payment of Heritage Bank’s debt not only improved FBNH’s balance sheet but also strengthened its position as a systemically important bank (SIB). An insider expressed optimism about FBNH’s future, emphasizing the resolution of the Heritage Bank issue as a turning point for regaining industry leadership.
Financial Performance
FBNH has shown strong financial performance despite internal and external challenges. In FY 2023, gross earnings grew by +95.70% to N1.60 trillion, and pre-tax profit increased by +126.86% to N350.59 billion. In Q1 2024, the bank recorded even higher growth, with gross earnings up by +181.43% and pre-tax profit by +325.15%.
These strong earnings and profit growth improved FBNH’s financial ratios, though challenges remain with the cost of risk and non-performing loan ratios. The cost-to-income ratio (CIR) fell below 50% in Q1 2024, indicating improved efficiency partly due to higher interest and non-interest incomes.
Outlook and Strategic Moves
Maintaining this growth in 2024 is crucial, especially considering macroeconomic conditions and monetary policies. Rising inflation and currency volatility could lead to higher interest rates, which may benefit the bank’s loans and interest-based investments. Analysts believe FBNH’s improved financial metrics should re-establish its tier 1 status and enhance its competitive ranking.
Over the past five years, FBNH’s earnings have grown by an average of 41.5%. Its price-to-earnings ratio is 2.74x, lower than the industry average of 7.5x, and its price-to-book value is 0.48x. Investors are expected to remain cautious while awaiting the bank’s recapitalization plans and future earnings projections.
Board and Governance
First Bank Nigeria Holdings has faced challenges with board changes, dropping from eleven to eight members in FY 2023. However, the board increased to ten members in Q1 2024 with new appointments. FirstBank also added two new board members, raising its total to fourteen in Q1 2024.
Gross Earnings Breakdown
FBNH’s gross earnings have grown by an average of 19% annually, reaching N1.60 trillion in FY 2023, a +95.70% increase from N815.16 billion in FY 2022. This growth came from both interest and non-interest income, with interest income contributing 60% and non-interest income 40%. The commercial banking segment was the main driver, contributing 94% of gross earnings.
In Q1 2024, gross earnings grew by +181.43% to N730.30 billion, driven by higher investments, loans, fees, and gains from financial instruments.
Industry Position and Profitability
FBNH’s profitability has improved, climbing from 7th in 2019 to 3rd in Q1 2024. Despite governance struggles, the group’s strategic plan has driven rapid growth. However, its low dividend payout has kept its dividend yield behind other industry players.
Among tier 1 banks, FBNH’s gross earnings and profitability were strong, though it lagged behind some competitors. Despite this, the bank’s earnings per share remained in single digits, highlighting higher operating costs.
Closing Thoughts
First Bank Nigeria Holdings positive financial results suggest that its internal governance issues had a limited impact on performance. To sustain this, analysts recommend tightening governance to prevent negative perceptions among investors. The group plans to raise an additional N300 billion in Tier 1 equity, which, if successful, will support its growth and strategic goals.
As FBNH moves forward, the market will watch closely how it manages recent changes and capitalizes on its legacy and expertise to regain a leading industry position.
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