No doubt , the true competitive position of First Bank Nigeria Holdings, FBNH, is still largely controversial for those not well grounded in art of financial analysis. For some of these observers, the bank has regained its financial health. However , for others , that observation is misleading, highly fallacious and an undiluted demonstration of ignorance . Surely, the oldest bank is faraway from its new dream
The view of the former is simple and clear: despite the internal and external difficulties it faced , the believed FBNH was more resilient, better managed, and focused going by its FY 2023 and Q1 2024. This claim is supported with recent figures from its audited accounts. FBNH’s gross earnings and pre-tax profit grew by +95.70% and +126.86% to N1.60trn and N350.59bn in FY 2023, and even higher growth performance was recorded in Q1 2024 (+181.43% and +325.15% for gross earnings and PBT, respectively).The substantial profit growth nudged earnings per share to N8.59k in FY 2023 from N3.75k in FY 2022.
Even from the perspective of its financial ratios,driven its strong gross earnings and profit growth FBNH is explored to prove it has returned. Its key financial ratios improved in FY 2023 too : return on equity (ROAE) and Average Assets (ROAA) rose to 22.60% and 2.30% in FY 2023 from 14.50% and 1.40% in FY 2022.The net interest margin improved to 6.10% in FY 2023 as the group earned higher interest income over interest expense.The robust earnings scaled down the group’s cost-to-income ratio to 49.10%, implying better cost optimization . With the above explanations , those observers may be correct, but when the bank is compared with its embarrassing past .
But the above analysis , to some individuals and analysts,fails to fully capture the true health position and the competitiveness of the oldest bank in Nigeria.
For them , when such an entity is without any competitive advantage where it really matters in the business of financial intermediation ; when it is difficult and uncertain to rely on its corporate governance architecture because it had been messed up in the recent past , yet the key alleged culprit returned as the biggest single shareholder or where an organization could not claim leadership , at least, in one area among its rivals , such a bank may remain unreliable . And most importantly, where the so-called super performance upon which that claim is based is not sustainable, investors should be worried . These ,they believed, should be the better guides for both existing and the potential investors of the bank as it pursues its recapitalisation initiative to fulfil the Central Bank of Nigeria directive and other ambitions .
FBNH : The Most Inefficient Tier 1 Bank
Recapitalisation, consolidation and the emergence of new players in the Nigerian banking industry have reshuffled the ranking of banks While some were forced behind ,others technology-driven ones took the spotlight . FBN ,the oldest Nigerian bank was not exempted from the reshuffle; the once biggest bank slipped from the fourth position in asset size in 2019 to the fifth position in 2022 and has remained in the position, outran by UBA . Though size has potentials to give some advantages to an entity , the loss of its size leadership is not a big deal as such for the investors hunting for value by investing in stocks . Their belief is that bigness without stretch and leverage is obesity just as smallness without stretch and leverage is impotence. XThis is what will determine which company or bank the investors will scramble to buy its shares in the ongoing recapitalization race .Although, in terms of profitability FiirstBank climbed from 7th in 2019 to 4th in 2023 and 3rd by Q1 2024 remains the least efficient bank among its peers.
In 2023 financial year,the banking industry saw gross earnings and profitability climb to record highs, benefitting from MPR increases and naira devaluation.Among the tier 1 banks, Access Holding saw the highest gross earnings at N2.59trn, followed by other two banks with gross earnings above N2trn However , while FBNH and GTCO earnings were below N2trn at N1.59trn and N1.19trn respectively,the above positions were slightly different coming to profitability, with Zenith Bank taking the lead at N795.96bn, ahead of UBA (N757.68bn) and Access Holding (N729.00bn) , FBNH had the lowest figure at N350.59bn behind GTCO. One thing that exposesd FBNH is that despite GTCO being behind FBNH in gross earnings, GTCO was not only more profitable but greatly so
Poor Dividend Payout, worst Dividend Yield
For this poor showing the investors of FBNH are at the receiving end with the worst returns on their investments .FBNH’s consistently low dividend payout (hovering below N1) has kept the dividend yield behind that of other industry player .The group’s dividend yield slumped to the rear end by 2023, with ten (10) banks ahead of the entity, compared to six (6) banks in 2019 .
WORST EPS
This bank also emerged with the worst EPS .The banks’ high earnings caused earnings per share for most banks to grow to double digits except for FBNH, which had a single-digit EPS of N8.59k .Zenith Bank had the highest EPS at N21.55k . The implication of this is that FBNH incurred highest operating costs, eating into its profit relative to others.
FBNH is just a mirror image of GTCO.
GTCO shows better financial health than its rivals based on comparative financial statistics despite having the country’s top six banks’ lowest gross earnings, profit, and asset size
It had the highest net interest margin (NIM), return on equity (ROE), and return on assets (ROA). Also, GTCO was the most cost-efficient financial lender, with a cost-to-income ratio (CIR) of 29.10% while FBNH was the least efficient with a CIR of 49.08% .The fundamental valuation xxccc of the banks showed that GTCO had the highest price-to-book value at 0.96X but FBNH had the highest price-to-earnings at 2.74x .This suggests that GTCO’s market value reflects its underlying book value and earnings more than its rivals. Compared to the industry average of 7.5x.,FBNH price-to-book value (PBV) is below 1 at 0.48x. Analysts expect investors to remain cautious about banking stocks while awaiting their recapitalisation strategies and future earnings projections.
In FY 2023, FBNH’s Price-to-Earnings (P/E) ratio dropped to 2.74x from 3.12x in FY 2022, reflecting higher market attraction relative to the previous year.The P/B ratio slightly increased to 0.48x but remained below 1, signifying that the bank is valued below its book value FBNH’s earnings have grown steadily by an average of 41.5% in the past five years, FBNH’s share price rally moved its market capitalisation closer to a trillion naira mark, settling at N809.44bn as at May 23, 2024.This rally fed into key investors’ metrics for the company (see table 3 beloxxxcDespite the high-interest rate environment,GTCO had a 1.80% cost of funds, significantly lower than its peers .FBNH ’s cost of risk (CoR) and the non-performing loan (NPLR) ratios, reflecting rising funding costs and the deterioration in loan quality
Hunted by the Past weak corporate governance
FBNH’s ability to manage post-leadership changes is, no doubt, commendable, however , that capability will continue to be tested; The market watches keenly how this recent change in the board is managed.. Moreover, its weak corporate governance and the humongous fraud commtted by some insider will continue to hunt it for some years to come .
As regards the issue of its recent performance , particularly its 2023 financial year and its 2024 Q1 results , these are deceptively impressive from the point of view of a historical benchmarking perspective. FBNH remains a big but miserable entity , when its 2023 and Q1 2024 results are juxtaposed with those of its rivals , particularly the best invlas among them .
Weak Competitive Position. XXXXC
Earnings May Not Be Sustainable for Lack of Core competence in Critical areas.
FBNH’s positive financial numbers would suggest that the internal governance challenges it experienced had a modest impact on its financial performance in FY 2023 and Q1’2024. But the issue is that smart investors are looking for is sustainability. To make this sustainable, analysts believe that it is important that the group resolves and tightens its governance architecture to prevent spillover effects in investors’ perceptions and consequently market valuation.
However .this bank needs to look into its resource management capacity building and resolve its structural adjustments to be repositioned after -recapitalization.; it needs to clear the forbearance balances with CBN in its books and strengthen its position as a systemically important bank (SIB)..it needs to focus more on regaining an industry position that is more consistent with the bank’s age, pedigree, and collective staff expertise before its current positive outlook could inspire confidence among stakeholders in FBN’s future since the banking arm continues to dominate the group’s operation.The persistence of naira depreciation and aggressive rate hikes sustained interest and non-interest growth in 2023 and Q1 2024.These two instances helped it to cushion the heavy foreign exchange losses and rising operating expenses. the group’s niggling operating headache cushioned the foreign exchange loss of N332.79bn, personnel expenses growth (+52.58%) and operating expenses growth (+49.59%).The group’s profitability tripled in Q1 2024 despite the foreign exchange loss incurred (N94.79bn) and higher operating expenses (+22.49%).The strong earnings translated to profitabilityxx, cushioning operating costs and FX exposure. However, the heightened risk environment weighed on the cost of risk and nonperforming loan ratio, rising to 3.30%and 4.70%, respectively.
Sustaining depends on the following:
sustaining this in 2024 depends on the future direction of macroeconomic indicators and monetary policy.Rising inflation and currency volatility may lead to higher interest rates, a situation usually favourable to banks’ loans & advances and interest-based investments.Analysts expect the aggressive rate hike and naira volatility to sustain profitability performance in most of the 2024 quarters
Share Price issue
Share Price Movementter downward fluctuations in Q1 2023, FBNH’s share price rebounded in April 2023 rising from N11.00k on April 27, 2023, to N23.55k on December 29, 2023.Analysts attributed the share price rally in July and beyond xx to the battle for ownership between Oba Otudeko and Femi Otedola.xxThe share price rally persisted in Q1 2024, rising to a resistant price of N43.95k on March 19, 2024.XxxxBy the beginning of Q2 2024, the share price began to tank, possibly due to investors’ pessimism about banking stocks, considering concerns about bank recapitalisation and falling earnings per share..The Holdco’s share price finally settled at N22.90k on June 11, 2024, leading to a negative year-to-date (YTD) return of -2.76% (see chart 3 below)
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The sudden spike in foreign currency translation reserves is due to the CBN’s directive on prudent management of revaluation gainsHowever , some analysts believe that this may not have a significant impact on its capital raising efforts for the fact that its high interest and high powered shareholders have positioned themselves to consolidate their interests as the bank set to raise an additional N300bn in Tier 1 equity (CET 1) either through a public offer or a private placement..calcite pretax and post tax margins
