With a significant reduction in its impairment charges (which translates into a clean loan book) in its 1Q, 2022 results, after successfully reducing its non-performing loan to 6.1% in its 2021 full year performance, analysts say FirstBank’s impressive performance in the first quarter not only demonstrated consistency in its rebound but also the fact that the recovery is real.
It is a season of celebration for the shareholders of Nigeria’s banking behemoth, First Bank of Nigeria Limited, and a time to shower praise on the bank’s board and management for successfully bringing the bank back into reckoning after a long period of operational challenges, mostly blamed on rising cases of non-performing loans.
The shareholders, who joined other stakeholders of the bank and its parent business, FBN Holdings Plc., in reviewing the bank’s first-quarter 2022 results, which were made public last week, expressed relief that the organization has resolved the issue of non-performing loans.
According to them, the bank’s exceptional results for the full-year 2021 are an appetizer for the first-quarter 2022 results, and the recurrence of impressive results for the first quarter not only established the constancy of its restructuring but also that the recovery is real.
Sunny Nwosu, the creator and pioneer National Coordinator of the Independent Shareholders Association, told THISDAY over the weekend that the management of FirstBank deserves accolades for working the bank back to profitability and a clean loan book.
He feels that the capacity of the parent company, FBNHoldings, to considerably reduce its exposure to non-performing loans to 6.1 percent demonstrated that the bank has closed the door on potential delinquent debtors, a result he believes would consolidate the bank.
Nwosu stated that many shareholders were pleasantly surprised, first, by the success of the 2021 complete results, and that the first quarter of 2022 results confirmed the bank’s readiness to take its leadership position in the nation’s banking business.
“Considering all of the provisions they had made in the previous two years, and for them to have come out clean, it is not a bad result, and for them to have agreed to pay a 35 kobo dividend to shareholders, it is encouraging because most shareholders did not know the company was going to pay anything, especially given the economic challenges.”
“We are indeed delighted that they were able to reduce non-performing loans, which means they would have more money to do business with, and I’m very sure they will be more cautious this time when it comes to giving out loans,” Nwosu said.
He stated that FirstBank may yet return to the top of the Nigerian banking market, stating that the current leadership should keep an eye on the business and provide good incentives to employees to compete in the industry.
1Q 2022 RESULTS
Analysts said the bank has stayed impressive in nearly all of its performance indicators, a development they credited to the NPL reductions that have restored investor trust. And success with NPLs implies that asset quality would inevitably improve.
An examination of the bank’s performance gleaned from the group’s Q1, 2022 results revealed that its exposure to bad loans has been significantly reduced, with the amount set aside as impairment charges falling from N13.175 billion in the first quarter of 2021 to N8.75 billion in the first quarter of 2022.
First Bank of Nigeria Limited reported gross earnings of N170.4 billion in the fiscal year under review, up 33% from N128.1 billion the previous year.
The bank’s net interest income was N72.9 billion, up 42.1% from N51.3 billion in the same period in 2021, while non-interest income was N58.8 billion, up 21.7 percent from the previous year.
The profit after tax for the first quarter of 2022 was N31 billion, up from N16.3 billion in the previous period. The bank reported total assets of N8.8 trillion, a 3.5% increase from N8.5 trillion the previous year.
To demonstrate that the bank was serious about lending, its customers’ loans and advances (net) totalled N2.999 trillion, up 5.8 percent year-to-date as of December 2021, from N2.835 trillion, while customers’ deposits totalled N5.9 trillion, up from N5.6 trillion in the first quarter of 2021, a 5.4 percent increase.
BUILDING CONFIDENCE IN OPERATION
Analysts say First Bank of Nigeria Limited’s (FirstBank) recent turnaround and improvement in non-performing loans has been a huge help in the bank’s ambition to strengthen its leadership in Nigeria’s financial services market.
For example, it has been observed that the current leadership of its Chief Executive Officer, Dr Adesola Adeduntan, has been instrumental in building stakeholders’ confidence and trust in the bank’s financial viability, leaving analysts to ponder and possibly understudy the speed with which such feat has been accomplished. They stated that the bank’s consistent improvements in its Non-performing Loans (NPL) ratio and position gave answers to these questions.
For example, by June 2020, when improvements in the bank’s NPL percentage were reported, the NPL ratio stood at 8.8 percent. By March 2021, this ratio had dropped to 7.9 percent, and according to the 2021 results, it was only 6.1 percent.
Non-performing loans, or ‘NPLs,’ are bank loans that are late or unlikely to be repaid by the borrower. Borrowers’ incapacity to repay their loans was exacerbated during the financial crisis and following recessions.
For a bank that had nearly been brought to its knees by the burden of non-performing loans, it came as a huge relief to both shareholders and regulatory authorities that, for the first time in a long time, FirstBank’s NPLs dropped to 6.1 percent, a significant improvement when compared to other Tier 1 banks and the regulatory threshold of 5.0 percent.
Analysts also ascribed the dramatic drop in NPL rates from 40% in 2016 to 6.5 percent in 2021 to the group’s new corporate governance culture, which has successfully redesigned the company’s risk management skills.
According to the bank, the recent reversal and improvement in non-performing loans have been a significant boost in FirstBank’s quest to enhance profitability and strengthen its leadership in Nigeria’s financial services industry.
Analysts believe that with the remarkable results for its 2021 operations, FBN’s board and management have demonstrated to the investment community that the business is ready to take its leading role in the nation’s banking sector and that the institution’s years of locusts are behind it.
MAINTAINING A FAIRLY MANAGEABLE NPL RATIO
The year 2022 brought a lot of worries for the Nigerian banking industry, which was already under pressure due to a slow economy, a hard operating climate, and growing competitive intensity.
As economic realities dawned on Nigerians, particularly in an election year, many investors struggled to obtain reasonably priced loans from Nigerian banks, and their hardship is exacerbated when a bank is risk-averse due to a large number of bad loans on its books.
It is worth noting that, despite the enormous pressures placed on Nigerian banks by the current sluggish economy, the management of FirstBank managed to diversify its loan books while maintaining a reasonable Non-Performing Loan (NPL) ratio.
This is due to the fact that the percentage of non-performing loans in Nigeria reflects the overall soundness of the banking sector. A rising proportion of such loans indicates that banks are having problems collecting interest and principal on their loans. This may result in lower profitability for Nigerian banks and, possibly, bank closures.
FirstBank had the highest NPL ratio in four years in 2018, with 24.7 percent, which declined to 9.9 percent, 7.7 percent, 7.2 percent, and 6.1 percent in the 2019-2021 full-year results.
ADEDUNTAN: ‘WE ARE READY TO IMPROVE BOTTOM-LINE PERFORMANCE’
Dr Adesola Adeduntan, Chief Executive Officer of FirstBank Group, underlined the bank’s commitment to aspiring higher, saying, “At FirstBank, we have historically been intertwined with the fabric of this nation with a full-service commercial banking offering catering to every area of the economy.” “We believe we are now in an excellent position to convert this unique revenue generation potential into improved bottom-line performance.” Our first-quarter results show that we have begun our Quantum Profitability Leap journey in earnest, with profit before tax more than doubling to N34.1 billion as the Bank begins to reap the benefits of its successful balance-sheet restructuring, revamped risk management, robust technology, and innovative service offerings.
“Our gross earnings are up 33.0 percent year on year to N170.4 billion, while our net interest income is up 42.1 percent year on year to N72.9 billion.” Furthermore, our enhanced risk management capabilities enable us to buffer any unfavourable impact of headwinds that may materialize in light of present macroeconomic circumstances.” Looking ahead, we will continue to maximize the opportunities given by our large network and provide creative value-added solutions to our customers during these difficult times, while investing in expanding our digital banking capabilities to provide a better customer experience.”