FBN Holdings Plc, Nigeria’s largest lender is at the brink of a major credit collapse as Non Performing Loans (NPLS) hits 18.90 percent, crossing the 5.0 percent threshold set by the regulators. This follows the release of its much awaited 2015 full year results which the bank had warned will be materially lower than its 2014 results. Here are key highlights of this result;
Income Statement
- Gross earnings of N505.2 billion, up 4.9% year-on-year (Dec 2014: N481.8 billion)
- Net interest income of N265.0 billion, up 8.7% year-on-year (Dec 2014: N243.9 billion)
- Non-interest income of N99.4 billion, down 12.0% year-on-year (Dec 2014: N112.99 billion)
- Operating income of N364.4 billion, up 2.3% year-on-year (Dec 2014: N356.2 billion)
- Impairment charge for credit losses of N119.3 billion (Dec 2014: N25.9 billion)
- Operating expenses of N223.6 billion, down 5.6% year-on-year (Dec 2014: N236.8 billion)
- Profit before tax of N21.5 billion, down 77.1% year-on-year (Dec 2014: N94.1 billion)
- Profit after tax of N15.1 billion, down 82.0% year-on-year (Dec 2014: N84.0 billion)
Balance Sheet
- Total assets of N4.2 trillion, down 4.1% year-on-year (Dec 2014: N4.3 trillion)
- Customer deposits of N2.97 trillion, down 2.6% year-on-year (Dec 2014: N3.1 trillion)
- Customer loans and advances (net) of N1.8 trillion, down 16.6% year-on-year (Dec 2014: N2.2 trillion)
Key Ratios
- Post-tax return on average equity of 2.7% (Dec 2014: 16.9%)
- Post-tax return on average assets of 0.4% (Dec 2014: 2.0%)
- Net interest margin of 8.1% (Dec 2014: 7.6%)
- Cost to income ratio of 61.4% (Dec 2014: 66.5%)
- NPL ratio of 18.1% (Dec 2014: 2.9%)
- 58.6% liquidity ratio (FirstBank (Nigeria)3) (Dec 2014: 44.0%)
- 17.1% Basel 2 CAR (FirstBank (Nigeria)) (Dec 2014: 15.8%)
- 24.9% Basel 2 CAR (FBN Merchant Bank) (Dec 2014: 22.5%)
For shareholders of this bank, nothing could have prepared them more for this disaster that this result portends for the future of the bank and their investments.
A very high NPL indicates the bank has a high proportion of loans in its books that have gone bad as borrowers have stopped paying. The Central Bank regulations for NPL’s is 5 percent meaning banks are only allowed to have no more than 5% of their loans as non performing. First Bank has now more than tripled this limit to 18%, a border line that could have sunk most banks. Fortunately for shareholders it appears the bank has the balance sheet to absorb the loans as it still managed to eke our some profits at the end of the financial year.
Despite this, the lender’s net income dipped by 82 percent to N15.10 billion to end 2015 financial year much lower (based on audited financial statements), compared to N84 billion at December 2014. The reason for the sharp drop largely attributed to a 361 percent sharp rise in impairment charge for credit losses to N119.30 billion. Impairment charges or loan loss expenses occurs when it is probable that the Bank will be unable to collect all or some of the amounts due, including both the contractual interest and principal payments under a loan agreement. An impairment charge is thus an admission by the bank that a sum of N119.3 billion out of its total loans of N2.2 trillion may not be recoverable.
The bank explained the reason for the impairment as follows;
This was attributable to the recognition of impairment on some specific accounts as well as collective exposures following reassessment of the loan book in the commercial banking business due to the sharp decline in global oil prices, the volatile macro environment, and fiscal and monetary headwinds which have resulted in marked reduction in domestic output. Active remedial actions on the specific impaired accounts have commenced. The main sectors impacted are oil and gas, real estate and general commerce; contributing 59.7%, 12.3% and 10.2% to the impairment charge respectively.
The bank actually declared a fourth quarter loss of N35 billion as N72.6 billion out of the impairment charge came in the fourth quarter alone. The aforementioned dent at the bottom lines hindered the bank from utilizing the resources of shareholders in generating higher profit as post-tax return on average equity fell to 2.7 percent in December in 2015 as against 16.9 percent as at December 2014.
This results signals a porous risk management strategy for the bank a problem that has plagued this bank since it became a bank holding company. The bank admitted this much saying that;
A critical review of the culture and practice of our risk management function has been undertaken. We are implementing structural initiatives as we retool and reshape the ethos of the underwriting practice towards building a resilient loan portfolio under a new leadership.
Ironically FBNH still managed to propose a dividend per share of 15 kobo mostly from the profits it made from its other subsidiaries. However out of the N59 billion in profits posted about N41.6 billion came from its commercial banking business and another N10.7 billion from its Merchant Banking Business.
This result in a nutshell confirms analysts fears about First Bank’s exposure to the beleaguered oil and gas sector. Loans to major upstream companies were disbursed at a time when the price of oil was above $100 to local upstream companies who had just acquired license from IOC’s. Some analysts we spoke to also believe this may not be the end as more loans are likely to be provisioned in the coming quarters. The company also released its 2016 Q1 results reporting that it has provisioned another N12.8 billion in loans impaired for the quarter. To understand how significant this is, rival Tier 1 Banks, GTB and Zenith Bank reported a full year impairment of N12.4 billion and N15.6 billion respectively in the whole of 2015.
A lot of banks may have collapsed with this results. However, FBNH manages to stay afloat and still reporting profits and paying dividends. While this may sound as a respite to shareholders, history suggest when banks take impairment charges of the sort we have seen it is likely an indication of what is to come next. First Bank (FBNH subsidiary) still has over N2 trillion in loans suggesting that there could be more dirtbags to be provided for.
N120bn in impairments in a single year…Holly molly…what else is left on the loan books that can be salvaged. What is important to note is that, it takes a bank a whole lot to acknowledge loan loss on its financials. For these guys to actually take impairment of N120bn, there has to be a heck more of bad loans being managed internally…
I have a considerable respect for the writer of this article. He was able to go in dept into the activities of First Bank Holding, Plc. with particular reference to it impairment loans which almost eroded the very existence of the bank. Shareholders of the First Bank must extend special thanks to this bold writers and I must say, Nigeria needs more of these writers to clear the air from abuses from our financial institutions. I was looking at the comprehensive report but could not find why impairment loans are so huge! My personal observation has an indirect activities of Secret Societies and their powerful connections with our financial institutions. No one would come out boldly to mention names of members of these Secret Societies and that is why they are secretive in nature. What the Central Bank of Nigeria must do with immediate effect is to institute a high powered investigation of those personalities who have engaged themselves in destroying such an enviable institution like the First Bank of Nigeria, Plc. The investigation will surely exhumed those personalities who are out to destroy the economy of Nigeria. President Mohanmmadu Buhari should come out boldly to dislodge the activities of these evils in our society and save the First Bank and other institutions from the hands of these wicked under world men and women. Nigerians must work relentlessly together to uproot the evil influence of these men and women in our society. It has reach the stage of every Nigerians to come out to expose their activities. The era of colonialism has gone and gone for ever in Nigeria. During the colonial era, certain individuals (expatriates and Nigerians alike) categorize themselves as special in the society. They constitute themselves as power blocks and use their influence to get away with all sort of criminal activities within the government and private sectors of the economy. Most Nigerians are very well aware of their evil powers in the society. Nigeria has attained independence over 50 years ago and it is still being influenced by these evil forces! If I may ask, who is going to dislodged these powerful and evil minded people? Let our religious institutions come out with bold programmes that will educate the populace, particularly our youths about the activities of these evil people. As a matter of fact, certain of our young and progressive youths have been cleverly recruited into these secret societies through job offering opportunities. Nigeria right now is a good breeding opportunities for these evil people because of lack of employment. The very existence of these Secret Societies will make it almost impossible for the PMB administration to eradicate corruption in the country. That is a basic fact . Conclusively, both the government and private institutions must come out boldly to defend good governance and administration and shun corruptions in all aspect of our endeavors. Nigerians are God fearing and with prayers and supplications, corruption will be totally destroyed in the country.
Certainly nothing to cheer considering I bought FBHN Plc in 2014 and since then it has been one bad tale after another. I guess I have been very unlucky with buying stocks. Bought Oceanic and Sterling Bank and shortly after everything turned into a collosal waste of hard earned money. Lesson learnt.