First Bank of Nigeria, FBN Holdings Plc, came into existence in 2010 following the CBN’s regulation 3 on alternative holding company by which the original First Bank is now owned by the holding company. FBN Holdings has the largest number of shareholders in corporate Nigeria, most diversified ownership. The bank over the years has demonstrated leadership as the flagship of Nigeria’s banking industry and history being the oldest existing bank in Nigeria today and still number one in many areas.
It boasts of the widest customer network and loyalty with about 9.7 million customer accounts across the regions. A study carried out in 206 by some researchers at the University of Lagos on relationship between corporate governance and performance in the Nigerian Banking industry found that First Bank and one other bank came out joint tops as the best governed banks in the industry and that their historical sound performance could be explained by their good governance structure. Both Nigerian Stock Exchange and CBN have recognized the bank for this record in several years.
First Bank 2014 result showed it was the highest capitalized bank in Nigeria at N523 billion capital base. On the more critical issue of whether the level of capital was sufficient for its operations we estimate a measure of risk weighted asset ratio of the group at 15% declining from 17% in 2013. Though FBN emerged as the highest capitalized bank in terms of shareholders funds it is obvious from the risk relative measures that the size and risk of the business was covered by capital to the extent of 15% against the prescribed Basle11 requirement of 16% for that class of bank. However the figure here is for the group that includes different companies in different regulatory jurisdictions.
With about N2.22 trillion gross loan to the economy FBN appears to be the biggest funds provider for the economy amongst the banks. In 2014 alone it created loans worth N408 billion. This is one of the reasons the bank is classified as a lead systemically important bank by CBN. More than 55% of this loan size went to the oil and gas sector, manufacturing, consumer credit and the public sector.
To the credit of the bank’s credit risk management approach, and given the figures reported, a culture of high quality has long been established by the bank. Notwithstanding the massive lending activities, only about 3% was classified as non-performing according to the terms and conditions as well as requirements of relevant regulations. This is amongst the top eight performance in the industry.
Deposit Liability and Liquidity
If there is any single most important factor why FBN occupies the most unique position in the industry it is the sheer number of customers and deposits they have in the bank. With about 9.7 million customer accounts, the industry highest the bank had a deposit liability of N3.05 trillion. The bank has proved to be safe heaven to depositors with the volume of liquid assets available at all times to meet every obligation. We estimate that as much as N1.56 trillion was available in 2014 financial year, being investments in cash and short tenured assets.
Estimates of ratio of qualifying liquid assets to deposit liabilities was 30%. We consider these figures to be fit for purpose and adequate to satisfy the regulatory requirements.
To a typical investor in Nigeria’s stock market First Bank is always a good buy. This is largely due to consistent history of earnings, profitability and dividends performance. In 2014 the bank reported a group gross earnings of N480 billion, up from N396 billion in the preceding year. On this count no competitor in Nigeria matched this performance.
Out of this figure interest income accounted 75%, down from 82% in 2013 as the bank moved to insulate performance from regulatory headwinds and interest margin came down to 67% from 71%.
In 2014 operating expense increased by more than N50 billion as cost efficiency ratio declined to 19% from 21%. However, this was not sufficient to eclipse the strong earnings performance leading to an elevated profit after tax of N83 billion against N71 billion in 2013. This figure which competed in the industry top three translated to return on average equity of 17%, up from 15% in the preceding year. Interim results in 2015 is looking good perhaps a better ratios would be seen in our nest publication in April 2016.