Task of sustaining First Bank’s pioneering status
With a rich history sprawling back to 1894, First Bank of Nigeria (FBN) Limited prides itself on many firsts, as its name rightly suggests – the pioneer of Nigeria’s financial system, the first company to be quoted on the country’s stock exchange, first Nigeria’s bank to sign-off offshore operation, the first to deploy automated teller machine and many more.
In its early days, it enjoyed the monopoly of banking corporate Nigeria, a country its brand and operation predated. The bank has not only lost that monopoly but also found itself in a market where it needed to work very hard to remain a member of the exclusive elite banks.
Amid the stiff competition, the lender with its parent holding company (FBN Holdings Plc), is fast reinventing itself as the bank of choice. In the past two years, particularly, the institution has demonstrated its commitment to building a new much stronger franchise as evidenced in improved asset quality, healthy profitability, improved capitalisation, stable funding profile and compliance with environmental, social and governance (ESG) protocols.
Its new winning streak came to the fore recently when it was recognised by The Banker Magazine, a publication of Financial Times Limited, in the Top 100 African Bank Rankings 2022. The award showed that FirstBank is leading the Nigerian table in four areas – the highest achieved by any Nigerian bank. According to the ranking, which drew on the 2021 financials, the bank top its peers in Nigeria in terms of overall performance, profitability, efficiency and return on risk. It was also second in growth ranking.
In addition to recognition by The Banker Magazine, which is based on quantitative assessment, Nigeria’s premier bank also clinched the Best Bank in Nigeria 2022 and Best Banking Digital Transformation Nigeria at the International Investor Awards 2022.
The bank was recognised as the Best Bank in Nigeria for its leadership role in promoting financial inclusion – an effort with a strong positive correlation with wealth creation and the growth of the digital economy. The honour did not come as a surprise to many. Firstmonie, its plug-in fintech platform, has redefined agent banking. And this was also recognised through the Best Bank in Digital Transformation by the International Investor Awards. The award organisers highlighted FirstBank’s continued efforts at reinventing its digital banking channels, which are central to reinforcing its leadership role in promoting a cashless society in the country.
Related to its efforts, the bank recently unveiled a fully automated branch FirstBank Digital Experience Centre, which has added to its bouquet of digital products such as USSD banking, FirstMobile, WhatsApp banking amongst others.
On the awards, its Group Head, Marketing and Corporate Communications, Folake Ani-Mumuney, said: “We thank International Investor Awards for the recognition while dedicating these awards to our esteemed customers spread across the world for their unflinching patronage of our services in our 128 years of existence.
“As a bank that is woven into the fabric of society, we remain committed to ensuring that our customers enjoy safe, secure and advanced financial services as they seamlessly carry out their banking transactions on the go, irrespective of where they are.”
Last year, the bank was similarly honoured, with the Most Innovative Retail Banking App Nigeria 2021 by Global Banking and Finance Awards, African Bank of the Year 2021 and Innovative Banking Product of the Year 2021 by African Leadership Magazine Awards and Best Internet Banking Nigeria 2021 by International Business Magazine added to its swelling profile.
Perhaps, a more rewarding recognition of the premier bank’s reinvention in recent times came from the global rating agencies. For instance, Fitch Ratings upgraded the bank’s and its parent company’s long-term issuer default ratings (IDRs) from ‘B-’ to ‘B’ with stable outlooks, which has boosted its access to cheaper funds for intermediation and expansion.
In the same report, the global rating institution also upgraded the lender’s viability ratings (VR) to ‘b’, from the earlier ‘b-‘. The upgrade reflected an improvement in its corporate governance, showing that its longstanding related-party exposures have been addressed, the agency said.
“Fitch has withdrawn FBNH’s and FBN’s Support Ratings and Support Rating Floors, as they are no longer relevant to the agency’s coverage following the publication of its updated Bank Rating Criteria on November 12, 2021. In line with the updated criteria, we have assigned Government Support Ratings (GSR) of ‘no support’ (ns) to both issuers,” Fitch said.
According to the report, the VR is equalised with the group VR, derived from the consolidated risk assessment of the group due to the absence of double leverage and high fungibility of capital and liquidity. Also, the main operating entity (FBN)’s VR is also equalised with the group’s VR.
“Fitch understands from management that FBNH and FBN have not been subject to penalties in relation to irregularities raised by the CBN in April 2021 and no further irregularities have been raised,” the report said.
Fitch scored revenue diversification of the bank, which sits on over one-tenth of the industry’s total assets, strong with non-interest income representing 48 per cent of operating income, according to last year’s financial report.
“Single-borrower credit concentration is material, with the 20-largest loans representing 157 per cent of Fitch Core Capital (FCC) at end-H1 ‘22. Oil and gas exposure (30 per cent of net loans at end-2021) is higher than the banking-system average and weighted towards higher-risk upstream and services sub-segments,” the report pointed out.
On asset quality, Fitch noted that FirstBank’s impaired loans ratio declined significantly to 5.6 per cent in H1 ‘22 from a peak of 25 per cent in 2018 following “sizeable write-offs, successful restructurings and recoveries and more recently the flattering effect of strong loan growth.”
It expects a continued decline in its stage two loans (currently 15 per cent of total credit portfolio) as oil and gas exposures return to performing status, adding that loan loss allowance coverage of impaired loans, which was 49 per cent at the end of H1 ’22 “is acceptable given its collateral levels”.
“FBNH delivers healthy profitability as indicated by an operating return on risk-weighted assets (RWAs) averaging 2.6 per cent over the past four years (four per cent in 2021 underpinned by large recoveries on a previously written-off loan).
“Earnings benefit from a low cost of funding and strong non-interest income but are constrained by a high cost-to-income ratio (74 per cent in 2021) and significant loan impairment charges (LICs) in recent years,” the rating agency noted, pointing out improved capitalisation, creditworthiness, more stable funding profile as key positive indices considered in its assessment.
An independent global qualitative assessment of the leading financial service providers conducted by Euromoney Institutional Investor Plc this year also aligns with Fitch and others’ scorecards on FirstBank’s rising market leadership and robust corporate governance. The evaluation scored the bank as a market leader in corporate social responsibility (CSR) and ESG as well as “highly regarded” in corporate banking and digital solutions.
Across the top and bottom line metrics, the premier financial institution has proved naysayers wrong, showing a more-than-expected resilient near-term outlook in its 2021 financial.
The bank grew its total assets in the financial sector by 15.9 year-on-year (Y/Y), from N7.4 trillion to N8.5 trillion. The growth of its balance sheet was driven by improvement in its customers’ loans and advances, which rose 27.7 per cent in the year to N2.8 trillion.
The growth of the banking subsidiary’s operation raised the holding’s total assets to N8.93 trillion or 16.2 per cent from N7.69 trillion posted in 2020.
Emerging from the ownership restructuring process, the premier bank also achieved a 30.3 per cent growth in gross earnings, posting N716.8 billion as against N550.3 billion recorded in the comparative year. Its non-interest revenue stood at N342.2 billion, up 106.4 per cent from N165.8 billion posted in the 2020 financial year.
Its operating income revenue margin grew from 42.5 per cent to 61.5 per cent, a 19-percentage point improvement. The performance in non-interest income may have demonstrated the bank’s increasing returns from investment in financial technology, including electronic payment systems.
The bank also improves in its deposit mobilisation drive with customers’ deposits improving by close to 20 per cent to N5.6 trillion. The bank says customer accounts have grown from about 10 million in 2015 to over 36 million (including digital wallets) with over 11.8 million issued cards and over 18.6 million active customers.
Its bottom line also performed above the industry average as profit before tax (PBT) rose by 77.9 per cent to N130.9 billion, up from 73.6 billion recorded last year. The profit after tax (PAT) also rose by 73.9 per cent Y/Y to 117.8 billion while operating expenses stood at N313.9 billion.
The quality of its asset is reflected in the reduction of its non-performing loan (NPL) from 7.7 to 6.1 per cent, a major leap towards achieving the five per cent regulatory threshold.
The bank’s capital adequacy ratio improved from 17 to 17.4 per cent while that of the holding company was 19.5 per cent. The holding’s book value per share also rose to 24.5. FirstBank has transitioned into a sustained growth phase and delivers performance commensurate with the size of our business and the capabilities of our people.
Chief Executive Officer of FirstBank Group, Dr Adesola Adeduntan, had said: “Following years of strategic restructuring of the bank’s balance sheet and operations, the commercial banking business is beginning to transition into a sustained growth phase delivering performance commensurate to the size of our business and capabilities of our people.”
Indeed, the half-year 2022 (H1 ’22) performance was even more resilient. Driven by the banking operation, the consolidated account recorded a 45 per cent growth in its profitability to N66 billion, from N45.2 billion posted in the corresponding period of 2021 (H1’21).
Hence profit after tax (PAT) grew by 48.6 per cent to N56.5 billion, from N38.1 billion recorded in the comparative period. Its profit was driven by 22.4 per cent growth in gross earnings, which soared to N359.2 billion, from N293.4 billion in H1’21.
As posited by Fitch, the quality of the bank’s balance sheet has continued to improve. For instance, the NPL ratio dropped to 5.4 per cent while impairment charges for losses to bad loans fell 18 per cent, from N26.7 billion in H1 ’21 to N21.7 billion in H1’22.
Chief Executive Officer of FirstBank commercial banking group, Dr. Adesola Adeduntan: attributed the turnaround in profitability to its ‘Quantum Profitability Leap’ agenda.