One thing that could not be disputed is that the damage of the past to this brand is still hunting its future . Its current efforts at raising new funds to boost its capital base as demanded by the regulatory authorities may be its immediate victim
To capture the maximum returns a product or service , a company must have the capability for the preemption as well as its prerequisites of proximity, predisposition, and propagation.
First Bank Nigeria Holdings, FBNH, as a “brand” , was a rock-solid ; its brand equity or power was a valuable asset that gave it an edge over others . Obviously, it engendered a greater predisposition to its services from banking customers. Most importantly, its banner brand’s power created a high level of awareness and confidence for its services ; it also delivered impressive affinity with customer sense of self with its plausible product and service scope.
That enviable brand power was driven its age-long wealth of experience and size advantage , the then critical success factors in the business of financial intermediation . This bank’s industry leadership was driven by those factors and made it to be the most profitable and most valuable bank then .
It is not unusual, every corporate organisation with such a brand’s enormous values enjoys certain privileges. It can charge more for a product ; the equity could be transferred to line extensions , so a business can make more money from the brand. It can help boost a company’s stock price.
Unfortunately, this is not the case today with this once upon a time an industry leader . Investors are becoming more cautious with anything that has to do with FBNH .At a point, it teetered so long on the brink corporate failure before it was rescued by the Central Bank of Nigeria,CBN .
This downturn in the fate of FBN was confirmed by an analyst. “If it were some decades ago , the current recapitalization efforts of First Bank Nigeria Holdings, FBNH, would have not given the management any sleepless night ; whether a right issue or public offer is adopted as a means of raising the funds ordered by the Central Bank of Nigeria, CBN ,it would have been a walk over “
The above scepticism or fear may not be misplaced. It may be difficult for the stock investors to forget in a hurry a decade-long harrowing experience that followed the collapse of the bank’s corporate governance. .
In the last one decade , its shareholders experienced the worst in the history of the bank. For instance, the year 2016 saw its non-performing loans spike and its share price fall to as low as N3 per share.FBNH had recorded a total loan impairment of over N565 billion between 2016 and 2020, with N376.4 billion, accounting for more than half the total loans impaired, provided for in 2016 and 2017 alone. Insider-related loans in First Bank were problematic and were responsible for the spike in bad loans, the CBN said at the time.
Those issues have created fears and apprehensions which are believed to be capable of making both the existing and potential shareholders to have their second thought over its new offers targeted at meeting the directive of CBN on new capital
The spillovers from those critical issues, traced to its leadership inadequacies , are palpable : high cost-to-income ratios (CIRs), poorly balanced loan asset distribution, large non-performing loans (NPLs), overweight bank clearing house exposures to lower-tiered deposit-taking institutions and mind-boggling frauds that stunted and rattled it in the last one decade ; they robbed it of its leadership position and turned it a shadow of its former self.
The whole blame could be traced to the ineptitude of the leadership of this bank that failed to align it with the environmental dynamics. With deep and dramatic transformations in the operating environment , the above factors which used to be the critical success factors and which gave the bank some edges over others had become thresholds . This is as some younger banks have overtaken it in size and others areas where it had upper hands over them in the past .
The genesis of the bank’s misfortune is clear enough. Its leadership inability to manage some strategic changes dictated by the 20th century fast enough to sustain the bank’s industry leadership was the beginning of its current misfortune. FBN leadership was expected to key into such dictates of rapid change in the environment , foster and integrate knowledge , exploit modern communication technologies and forces of globalization in a manner that is unique and ,or generates core competencies and values, no competitors could outperform. .
FBN’s leadership was expected to demonstrate foresight, a critical factor in a battle for the future that helps proactive corporate leaders , to see far ahead than its competitors. But rather than doing this , analysts believed, its management busy defending its leadership with its size advantage just as process reengineering and restructuring dominated its top management agenda instead of “reengineering” its industry.
The bank’ management surely failed to understand a simple logic that to extend leadership a company must eventually reinvent leadership, to reinvent leadership ,it must ultimately reinvent its industry, and to reinvent its industry it must ultimately regenerate its strategy. In other words , its top management’s primary task was to reinvent the industry and regenerating strategy, not reengineering processes which dominated its efforts. .
However, unlike the leadership of FBN which was asleep at the switch when it mattered most and failed to obey that above logic , some smarter and younger competitors took the advantage of its laxity : they changed the rules of the game and overtook it on the road to the future. They started the herculean work of creating the future :changed in some fundamental way the rules of engagement and redrew the industry boundaries .
To achieve the above and snatch the industry leadership ,dominated by FBN for decades , the first thing done by some younger banks was to capture intellectual leadership— developing industry foresight and crafting strategic architecture–to gain a deeper understanding than it of the trends and discontinuities—technological, demographic, regulatory, or lifestyle—that could be used to transform industry boundaries and create new competitive space. They conceived an alternate industry structure or a new opportunity arena with a goal to out-think and out-imagine competitors . They also conceived fundamentally new types of customer benefits, or radically new ways of delivering existing customer benefits. In short, they had the capability to magine the future better and faster.
At another stage, they shaped and foreshortened the migration paths between today’s markets and industry structure and tomorrow’s .They actively shaped the emergence of that future industry structure to their own advantage by accumulating necessary competencies (and overcoming technical hurdles), by testing and proving out alternate product and service concepts (by progressively discovering what customers really want), attracting coalition partners who had critical complementary resources, constructing whatever product or service delivery infrastructure that may be required as well as getting agreement around standards, if necessary.
The above initiatives at premarket level gave them an opportunity to gain enough market share and position when the battle shifted to a direct product-to-product rivalry between firms once the new opportunities “took off” and the new industry structure began to form. Within fairly well-defined parameters of value, cost, price, and service those initiatives ,indeed, gave some younger banks capability to outperform FBN just as the innovation is focused on product line extensions, efficiency improvement, and what are usually marginal gains in product or service.
For its slow ,weaker pre-market level and competitive energy , FBN lost its intellectual leadership as well as the capacity to foreshorten the migration paths and capture the core competencies needed to sustain its leadership to some younger banks . In other words , it is not only pre-market level performance of FBN that is uninspiring but its market position and market share .
Sequel to those inadequacies , the bank is currently passing through exactly the opposite of the above expectation . Its palpable relative feeble competitive and intellectual energy were compounded , however, by its weak corporate governance of the past and spate of frauds in the bank .
No doubt , its turbulent decade of weak corporate governance ,managerial malfeasance and inert leadership has conspired to drain deeply the brand power and profitability of the onetime industry leader ; it has continued to hunt its future too .
These remain the key threats to the sustainability of the recent improvements registered under its immediate past leadership. .
⁰ FBNH’s new leadership is currently battling the soul of an entity that remains the least efficient bank among the tier 1 banks in Nigeria with the worst net profit margin ,earnings per share , dividends yield and payout as well as an uninspiring non performing loan ratio to say the least.
One thing that could not be disputed is that the damage of the past to this brand is still hunting its future . Its current efforts at raising new funds to boost its capital base as demanded by the regulatory authorities may be its immediate victim . A detailed analysis of this ugly scenario is captured below shows the new leadership of FBNH is currently confronted by some uphill tasks that may be giving the bank’s shareholders some sleepless nights . Let’s analyze these in turn .
The Most Inefficient Tier 1 Bank
Though size has potentials to give some advantages to an entity , the loss of i9ts 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. Resourcefulness , and not resources 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 exposed FBNH’s inefficient profit machine is that despite GTCO being far behind FBNH in gross earnings, GTCO was not only more profitable but greatly so than FBNH.
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 .
Heavy Capital Gain Loss .
The share price of this bank fell to N3 at point and never rose up to N10 for years . Although share price rally moved its market capitalisation closer to a trillion naira mark, settling at N809.44bn as at May 23, 2024 , it had little things to do with its improved fundamentals .Analysts attributed the share price rally in July and beyond to the battle for ownership between Oba Otudeko and Femi Otedola. The share price rally persisted in Q1 2024, rising to a resistant price of N43.95k on March 19, 2024.By 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% .
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. A portion of a company’s profit that is allocated to every individual share of the stock ,EPS is of much importance to investors and people who trade in the stock market. The higher the earnings per share of a company, the better is its profitability.
Worst Net Profit Margin
.At a marginal level, the bank’s net profit margin s the worst among its peers . In the financial year 2023 , converting every N100 made at the top line to a meager N19.40k at the bottom line is a dark spot that confirms FBNH is yet to vacate its laggard status .while the bank is increasing profits on a phenomenal basis, its margins have been sluggish . This could prove dangerous in an economy where inflation is scarcely tamed ,hitting rooftop . This indicates more can be done to cut down cost of operation going forward.
COST TO INCOME ISSUE
In a bid to yank up bottom line it would be necessary to tame costs especially in an environment where the cost of doing business is perpetuity; nibbling the fat off hard earned returns
As a result of its inability to generate significant improvement in efficiency, the bank’s cost-to-income ratio settled at 49.3 per cent .Despite the fact that this was an improvement compared to the previous year ,that figure remains the worst .
COST OF RISK
Also, the cost of risk dropped to 0.9 per cent as against 4.3 per cent in 2017
2. COST OF RISK Also, the bank’s robust risk management framework ensured that the cost of risk reduced significantly from 4.3 per cent in the prior year to 0.9 per cent in 2018. This was achieved through the reduction in impairment charges by 81 per cent, N80 billion, compared to 2017, re-affirming the bank’s enhanced asset quality. In the same breadth, coverage ratio increased by 34.2 per cent from 143.4 per cent to 192.4 per cent over the same period, an indication of prudent disposition consistent with the bank’s known record of excellent credit risk management
FBNH is just a mirror image of GTCO.
To some analysts, its recent performances , particularly its 2023 financial year and its 2024 Q1 results , are impressive only when the results are benchmarked with its historical data . According to them , FBNH remains a big but miserable entity , when its 2023 and Q1 2024 results are juxtaposed with those of its rivals , particularly GTCO ,the best in class among the Tier 1 banks in Nigeria .
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 . And FBNH is just its mirror image.
One big lesson First Bank needs to learn from this relatively younger bank is that bigness without stretch and leverage is obesity just as smallness without stretch and leverage is impotence. It has to review its strategic error of too much emphasis on size advantage without corresponding efforts on resourcefulness.
Profitability Ratios :GTCO vs FBNH
GTCO 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% .
Valuation Metrics
The fundamental valuation of the banks showed that GTCO had the highest price-to-book value at 0.96X .This suggests that GTCO’s market value reflects its underlying book value and earnings more than its rivals. 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 compared to the industry average of 7.5x.,FBNH price-to-book value (PBV) is below 1 at 0.48x .Despite the high-interest rate environment,GTCO had a 1.80% cost of funds, significantly lower than its peers .
Asset Quality
FBNH ’s cost of risk (CoR) and the non-performing loan (NPLR) ratios, reflecting rising funding costs and the deterioration in loan quality.
Those miserable signals from its past uninspiring corporate governance status and relative weak competitive position starring the investors gunning for its shares in the faces are too strong to be ignored by either the existing or potential investors .
Unless such signals that include its grossly inefficient profit machine ,weak security architecture and corporate governance are well firmed up , its miserable dividend yield and payout, uninspiring net profit margin and fundamental valuation metrics will continue to generate deep concerns among its stakeholders, indicating the bank is yet to come out of the treadmill relative to its rivals among the tier 1 banks .
The issue is that the current strenghts of FBNH are inadequate to cope with changes in the opportunities and threats in the operating environment, making it difficult for it to achieve its industry leadership aspirations even if its corporate governance is strong .
Key Challenges Paving The ways of the New Leadership.
Only the return of good corporate governance and the capability to change the rule of the game could the new management reset FBNH and assure the return of its good old decades of its industry leadership .The reason for that view may not far to seek . Good corporate governance structures can make organizations more competitive , ensure all their activities are consistent and up to regulatory standards, giving the board assurance that their rules and systems improve the business.
But some analysts believed the way to that sustainability is still paved with some threats . One of these, some analysts believed, is the return of Oba Otudeko who staged a comeback to a bank that he allegedly brought to its kneel after he was forced out by the CBN .Though he was not the only one allegedly behind the killer insiders loans , however , the belief was that the bulk stopped at his table as the board chairman with fiduciary responsibility of boards of directors that gave him the power to hire and fire the CEO and appoint other corporate officers ,compensate the CEO and other corporate officers, oversee corporate strategy and represent shareholders in the transparent and effective governance of the company. The fact remains that the board was allegedly doing something directly opposite the above and the price is what the bank is paying now .
Despite the above fear , some are still optimistic. They believed the hope for this bank and its shareholders is the presence of Dr Femi Otedola in the boardroom as the chairman. But the question one can not answer in affirmative remains: Will the new leadership under Femi Otedola as the chairman board of directors be able to make the difference expected while the man that allegedly brought the bank to its kneel is now stronger than ever as the largest single shareholder ?
The current fear is ,no doubt , compounded by speculation that Otudeko was allegedly denied the board chairmanship but was rewarded to be the donor of the new CEO . If the speculation is true , then , according to some analysts, he is now better placed to pocket the board and reign supreme than ever.
.The above belief may not be disputable. From the face value of it ,Otedola is in the control of the fiduciary power as the chairman of the board ,however , in reality the de-facto power belongs to the leadership of executives or CEO , some analysts insisted.
By that , they argued that whoever controls the executives holds the ace . “As an ex-officer of several public companies and as a consultant, I’ve been involved with lots of boards, executive staffs, investment banks, VCs, corporate attorneys, and the like. At least in my experience, boards don’t operate the way they’re supposed to”.”,an analyst declared
According to him shareholders are just offered a slate of directors and a handful of issues to rubber stamp. “They have two choices: accept or reject. Now, let me ask you this. If your spouse or doctor says, “Here’s my recommendation, take it or leave it,” what do you do? That’s right, you take it. Is it the best thing for you? Who the heck knows? You had a gun to your head so you nodded up and down”
As regards who comes up with those director candidates and other issues to vote on , the analyst believed it is the CEO and certain other corporate officers, though some companies employ executive search firms for new directors, he said the CEO and certain other corporate officers still oversee the selection process.
Concerning the oversight function, he said boards typically only see presentations that are scrutinized, sanitized, and polished by the executive management team. “During board meetings and in individual meetings, directors offer perspective and advice, but the management team is not obligated to follow that advice or even to close the loop.” In the current setting and by virtue of his overwhelming shareholding,Otudeko ,no doubt, has what it takes to move the voting power of the entire shareholders of the bank to his advantage irrespective of who presides over the as the chairman .And if the speculation that he anointed the new CEO for that office is anything to go by,he ,indeed ,holds the ace.
But some analysts said Otudeko is never a threat to the progress of FBNH but an asset with enormous business acumen and heavy potentials that shall create necessary synergy with Otedola’s vision .
Ways Out of the Treadmill
To recapture its dream of industry leadership, the bank needs to either possess unique resources or core competencies in some strategic areas of the business of financial intermediation.
Currently, there is none available. This bank used to depend on its financial assets that manifest in its wider branch network across the country. However , the changes in the environmental forces at the wake 20th century demand corresponding changes in strategy . The financial resources that gave it the opportunity to rule the industry have become thresholds as its rivals have caught up with it and exceeded it with greater assets .
The only opportunity to recapture its leadership lies in the deployment of those resources to gain core competencies in certain critical areas in the business of financial intermediation. FBNH needs core competence in cost optimization and risk management. Unfortunately, it lacks these . Its cost to income ratio is the worst, while risk management savvy is not inspiring with its none performing loan ratio among the worst .
Consequently, the net interest margin is at the threshold level. Even its treasury desk is not by any means fantastic. When other banks exploited currency depreciation and CBN hike in interest rates to boost their earnings exponentially, this bank made humungous loss in 2023, repeating the same in. the first quarter of 2024 in this area .
Its operating expenses also grew phenomenally within the two periods under review. .Its foreign exchange loss was N332.79bn, personnel expenses growth (+52.58%) and operating expenses growth (+49.59%).
The worst of all is its security architecture that exposes customers’ deposits to the robbers inside its banking halls .Beyond the above, FBNH has lost its intellectual leadership as none of its past leaders possessed the power of foresight that is imperative to
They neither have relevant skills for strategic intent needed for
To make its 2023 performance sustainable, analysts believe it is important the group resolves and tightens its governance architecture to prevent effects in investors’ perceptions and consequently market valuation.
Moreover ,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.
Meanwhile, sustaining its 2023 results 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 profitability performance in most of the 2024 quarters .
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