FBN Holdings says no more long-term loans for 2015 and why it’s probably a smart move

FBN Holdings the parent company of First Bank Plc is embarking on a massive U-turn that will now see the company focus more on short term lending that long term.

The CEO of the Holdco told Reuters that its new focus has now changed to short-term trade rather than medium to long term as the bank faces up to the new reality that is lower capital adequacy ratio. According to the MD

“In the past we would do term loans of two years but this year we would focus on trade finance….We are projecting modest loan growth of 4 percent. We expect to be conservative on loans … focusing on trade transactions that have typical 90-day cycles.”

What in this new plan?

Well, according to CEO they will focus on short-term trade financing to make up for slower growth in its loan book forecast to expand by 4 percent this year from 23 percent last year.  He also mentioned that they will be conservative on loans this year after financing oil and power projects in 2014.

What this all really means?

FBNH is currently the highest lender in the banking industry with over N2.6trillion in loans as at December 2014. This huge loan balance has now put significant pressure on the bank’s capital adequacy ratios dropping it to as low as 16%. This also affected the banks ability to pay robust dividends resulting to paying just 10kobo per share and a complimentary 1 for 10 bonus issue.

So basically, FBNH will only achieve a semblance of lending by financing trades that have at most, a one year cycle. That way they can still be lending without significantly committing to any loan growth. It is no wonder they are only increasing loan book by just 4% this year.

Is this is smart move?

The bank has reiterated that it has no plans to raise new equity. According to its CEO “Capital market conditions are not ideal for raising funds because the market has been bearish over the past one year and going to the market will devalue our shareholders,” . So on the back of this, it is actually a smart thing for them to reduce longer term lending , reduce dividend payouts and focus on shoring up CAR organically. They also need to sweat other assets in the Holdco which currently contributes only 7% of revenues with First Bank contributing 93%.

Maccido said he expected FBN Holdings to generate a tenth of its revenues from its investment banking and insurance units combined by 2016, up from around 7 percent now, after it acquired Kakawa Discount House and Oasis Insurance last year.