Professional Documents
Culture Documents
36
© 2010 www.proshareng.com 1
Contents
Fundamental Analysis 15
• The Financials Reviewed
• Q1 2010 Snapshot & Salient Indices
Technical Analysis 27
Going by the Bank’s analyst presentation in its September 30th, 2009 second quarter
report (http://www.proshareng.com/reports/view.php?id=2229) presented six months
after its full year results to March 2009 audited results, the several promises made by
the Management of the bank with reference to the quality of risk management and
credit worthiness could not be justified by the trend of results released. The robust
capital and strong liquidity cliché usually associated with the bank, has of late been
under pressure without any signs of an immediate let up in 2010 (relative to size and
potential).
It perhaps all started to unravel with the whooping sum of N26.113bn loan loss
provision made in the bank’s 2009 March full year results
(http://www.proshareng.com/reports/view.php?id=1990) which accounted for 11.93%
of the year’s total gross earnings and which accounted for overwhelming 207.76% of
the year’s profit after tax - triggering a series of pressures revealed in the
disproportionate movements in key balance sheet lines – all adding up to create for the
bank a heavy burden on profitability.
Though the market had been alerted to a slightly muted performance by the bank, the
‘clean bill of health’ provided by the Central Bank of Nigeria (CBN) bifurcation following
the conclusion of CBN/NDIC joint audit; nothing suggested that the bank, six months
after the full year results, would undertake another round of loan loss provisioning to
the tune of N29.5 bn - accounting for 23.02% and 1,364% of Gross earnings and profit
after tax respectively.
Just when all seemed to be settling, the bank, in its common year end results,
(http://www.proshareng.com/reports/view.php?id=2595), made an additional N42bn
loan loss attributed to “steep increase in loan loss provision driven by deterioration in
assets quality following the economic slowdown and downturn in the equity market.
For FBN – making losses due to equity market decline raises questions about risk
quality (not the ratios it often complies with) and the claims made by the bank
reviewed in section 2 of the report.
It is widely believed that these loan losses relates to exposures to the capital market –
margin loans (which stood at N13.9bn as at Q1’10 ending, up from N11.8bn as at
FY’09) arising from activities of its capital market subsidiaries. The bank though
expects some write backs and possible income from risk asset sales to the AMCON.
According to Vetiva Research, http://www.proshareng.com/reports/view.php?id=2651
“while write-back potentials already exist for margin exposures (in light of the market’s
2010 rally), these positives would only feature in the Bank’s financials by FY when the
entire margin book is fully marked to market”.
Going further “With the additional NPLs from Q4’09 in mind, we note that none of this
was linked to the Sea wolf deal, for which Management revealed as being classified on-
Balance Sheet and performing; thus, no provisions were made on it (NB: First Bank’s
Something thus remains unclear. How has the bank been treating "Provision for Bad
and Doubtful Loans - Risk Assets or Non-Performing Loans" in its books?
Specifically, FBN provisioned N28bn in 2008, another N29.5bn in 2009 and another
N42bn, a total of N99.5bn over a combined twenty-one (21) month period, if the
reports are being read correctly. Yet there is nothing reported in Accumulated Risky
Asset Reserve as against Accumulated Risky Assets to date. How can we have a
provision without showing the accumulation over time? Let us analyze the numbers
closely starting with the banks’ end of year report for March 2009.
In that report, FBN represented that the N26bn provisioning for non-performing or bad
loans was adequate and "FULLY" provisioned for the worst economic crises. The
use of the term/phrase - "Fully Provisioned" meant that all the potential bad debts were
covered as at the reporting date in line with both the prudential guidelines and best
practice rules.
If that were to be the case, what does the N29.5bn and N42bn provisioning represent?
Is this accumulated numbers from the last N26bn provisioned for the year ended March
2009? If these are new provisions, as it appears to be, the strain on profitability in 2010
may remain of the needed changes to its operations take effect. This surely must be a
wake-up call to the bank – the 2008/09 crisis has challenged the past glory mindset
and is demanding a new bank that is able to overcome the vagaries of a global
economy and competition from other players who appear nimble yet large enough to
draw from the benefits of size and scope. This waning stature was apparent in section 4
when we reviewed the performance of the banks share price over the same period.
The management of the bank, in response to the serious challenges it recognised, has
“set a bold TRANSFORMATION agenda to address these challenges” - see pages 35 to
45 of the report http://www.proshareng.com/reports/view.php?id=2595 to appreciate
the far reaching plans it has set out. (Reference CENTURY I and II transformational
projects)
On a positive note, there was a strong contribution of interest income to gross earnings.
The contribution has consistently increased from 65% in 2007/8 FY to 83% in the nine
month ended Dec 2009. The increase in gross earnings could be attributed to boost in
the company’s loan’s portfolio and growth in average assets as stated by the
management. The bank’s non-interest income however came under pressure in the last
two years due to drop in transaction volumes in line with the general slowdown in
economic activities.
The significant accumulation of credit has not come without its pitfalls. In two years, the
bank recorded huge cumulative credit impairment charges of N61bn (approx 6% of its
loan portfolio) which resulted in the non-performing loan spiking to 8.2% as at 31st
December 2009 from as low as 1.5% recorded as at March 2009.
Yet there remains a need to fully understand the movements in the financials of the
bank, especially as regards the relationships between asset growth and interest income.
According to Vetiva Research, “Between October 2009 and March 2010, Net Loans grew
by +45% (N390 billion/$2.6 billion) in an environment viewed Sector-wide as requiring
a very cautious approach to risk asset creation. Indeed, it appears First Bank grew its
loan book quite aggressively during this period. When we align this aggressive growth
with the observed clime in the Banking industry and wider economy, the prevailing high
systemic liquidity and expected corresponding growth in First Bank’s Interest Income
and other P&L lines over this same period, reveals a huge disconnect. At the Bank’s
Moving on, it is easily observable that the cost of creating the assets of the bank seems
to be on the high side; this could be as a result of the intense competition in the
industry which drove its cost of funds much higher. This consequently depressed the
ratio of net interest to interest income significantly from 66% recorded as at December
in 2008 to 59% in December 2009. The impact of this is seen in the drop of net income
to as low as N3.2bn as at 31st December 2009 from N37bn recorded for the same item
in December 2008.
If FBN embarked on staff rationalisation during the period (an unverified but undisputed
news story), it had a minimal effect on reducing operational cost; as staff costs
remained on the high side accounting for 51.80% of the total operating costs for the
nine months period to December 31st 2009.
Aside the high incidence of staff costs as observed above, the spike in operating costs
itself has been attributed to high maintenance costs for decaying infrastructure
and rising inflations impacting administrative and general expenses. For the bank to
have a decaying infrastructure over such a period of time suggests that there could be
significant outlays required in the future with attendant cost.
Investors will now have to take more than a passing interest in the Asset Replacement
Plan of the bank to identify areas of capital requirement, their timing and cost to bear
for not investing in preventing a decaying infrastructure. Indeed, much interest is now
aroused in the banks’ growth and expansion plan for which analysts believe would be
dependent on how well the bank is able to execute its change program under a fast
changing regulatory environment without sacrificing operational efficiency and customer
service.
The challenge for management is clear and the new leadership will be defined by how
well it is able to help the bank navigate its way out of the hole most financial
institutions are playing in.
First Bank Nigeria Plc posted a net profit of N3.189bn compared with N12.569bn profit
after tax reported in its 2008/2009 year end audited results to March 30th, 2009. The
bank in its 2010 first quarter to March 31st, 2010 recorded higher profitability positions
with N12.336bn Profit after tax reported, though below the preceding year comparable
period by 3.65% which closed at N12.8bn.
The factors that impacted the current profitability position recorded include:
Heavy loan loss provisions to the tune of N42bn made in the nine months
accounting period compared with N26.2bn and N29.5bn made at its March 31st 2009
and September 30th 2009 months for full year and subsequent second quarter
accounting periods.
The rising profile in its expenses as against the lower rate of some of the income
components for the period.
Though the bank recorded higher profitability in its Q1 2010 un-audited results,
percentage variances of most of the income components items closed on the southward
note when compared with the figures recorded in the comparable period. The variances
that were on the positive note were for those items that represent a burden on
profitability. This consequently led to a decline in some of the performance ratios in the
first quarter.
Like most banks that experienced an upswing to profitability at the end of Q1 2010,
FBN is expected to sustain the momentum based on the realisation of the tasks before
its management, and the low tolerance risk-band it has entered. It will have to deliver
its growth and expansion plan by raising money or/and acquisitions permissible by its
current capital size.
On the technical side, FBN Plc’s share price over a sixteen month period to May 21st,
2010 recorded a negative performance of -30.24% depreciations to close at N14.65
(close to its lower end fair price) from N21.00 it closed at the end of January 2nd, 2009
trading session. This trend placed First Bank Nigeria as one of the least appreciations
above January 2nd, 2009 price levels recorded in the sector. In the current year to date
appreciation and 6 months change shows a -31.81% decline and 1.7% increase
respectively.
From January 02nd, 2010 the bank’s share price appreciated marginally by +5%, still
placing the bank among the least appreciation, standing in the 14th position. First Bank
Nigeria Plc share price at the close of trading on the 21st May, 2010 traded below its 20
days, 50 days and 200 days moving averages. This shows that the bank’s shares has
not yet assumed a bullish trend notwithstanding the above average improvement
recorded in the market (see peer metric).
For the very first time, investors in FBN had to do a rethink about the stock after the
poor results released, and the decisions of some were moderated by the corporate
actions – dividends and bonuses – declared after.
We are of the view that the bank will enjoy a stable board and management since the
Central Bank of Nigeria policy on banks’ Managing Director/CEO would not affect the
bank now; allowing it the focus it needs to turn things around and reap the dividends
such continuity could afford transformational projects.
Prominent among the changes that have come into the banking industry is need for
strict adherence to sound risk management beyond a cliché, the adoption of world class
standards in disclosures, and the enthronement of a regulator-sensitive industry.
To achieve the shift in mindset it sought to create, the CBN took a series of steps which
is well documented in our treatise - The BULL IN THE CHINA SHOP report –
http://www.proshareng.com/admin/upload/reports/The%20Bull%20in%20the%20China%20Shop%20220809.pdf
(August 22, 2010). In this report, we presented the CBN’s outlook for the financial
market, its interventions and the consequential impact of the steps taken and proposed
– seeking to highlight the implementation variables that could impact the economy,
businesses and the fortunes of the banks.
The conclusion drawn was that the CBN’s actions were long overdue but fraught with
many unintended consequences which ought to be managed with a clear sense of
action timing lest we risked creating a state of inertia in the sector that could impact
affairs. The effect on the industry, post the report, revealed that the execution
challenges envisaged were not exaggerated and that the policies and pronouncements
of the Central Bank of Nigeria (CBN) had created a ‘avalanche effect’ on the sector - the
confluence of which undermined the most important ingredient in the financial market
place – trust and clarity of objectives, motives and engagements.
For the avoidance of doubt, we retain the conviction that some sort of intervention was
required at the time it came; and do believe that the scale and size of the intervention
were at a base level required to ‘rein in’ the shift in practice that has all but eroded the
Professional responsibility of banks and bankers.
This eventuality (and its herd management) however meant that banks had to operate
under excruciating but not existential circumstances and changes that impacted on how
they managed their poor risk-based decisions, provisions, focus on new businesses and
management changes; further accentuated by the increased political/sovereign risk that
pervaded the economy between November 2009 and February 2010 – all generally
creating an atmosphere, it would appear, un-conducive to commercial vibrancy.
Banks, in the country, were therefore subjected to the most rigorous stress test ever
conducted in banking history and under such a clime, it was not unexpected that a
general lull would pervade the market. Indeed, not a few banks had to contend with a
fast-moving news cycle that was fed regularly with scoops from the apex regulators
that ensured a more than 100days news cycle was maintained on the banking sector
and not on the economy itself.
The consequential move against ‘habitual’ debtors through the publication of names of
debtors – most of which were disputed/contested/clarified on the pages of newspapers
These set of initial actions by the CBN helped to create a rumour mill that just kept on
giving and in no time, facts were interlaced with fiction and the very lofty motive(s) of
the CBN were juxtaposed with conspiracy theorists and allegations of selective
intervention from all quarters.
What could not be disputed were the revelations of misdemeanours and malpractices
presented by the CBN against identified persons post their audit engagements that
were countered by shock, resistance and confrontation. The CBN, to its credit stood
strong despite subsequent mis-steps to steer the ‘reform’ forward.
Following the conclusion of the first CBN/NDIC joint audit of the banks in the country, the
regulatory authority axed the CEO’s of five banks and in its subsequent and final audit
axed the CEO’s of three additional banks and placed two banks on notice to build up its
capital base by June 2010.
The consequential effect of the audit which went on for about a period of three months
took its toll on individual banks, customers and the relationships that existed. More
importantly, the management and treatment of specialised assets and bank share-
backed collaterals led to subjective but prudence based provisioning that impacted on
the performance results of the cleared and un-cleared banks. This went on till
December 2009 when the CBN audit undertook its year end review and recognised the
need to take a more pragmatic and best practice view of the provisioning required
including the suspension of the general provisioning rule and the introduction of a
prudential guideline to take care of specialised assets.
The adoption of a common year accounting date in the sector will further reveal where
each bank stands in their fundamental and operational strengths. The results released
so far showed that some banks might not have much loan losses to make provisions for
(indeed, some had to plough back over-provisioning either as a function of recoveries or
the subjective application of judgements by inspectors) while others will have to make
additional provisions to reflect the deteriorating conditions of their loan portfolios,
diminution in value of assets, investments, and share backed collaterals or adjustments
necessitated by post audit evidence. Yet, it is evident from the results of all the ten
banks released so far, that some banks’ financial positions have improved from what
was reported by the CBN/NDIC special joint audit reports.
The rescued banks however face a different challenge. On the one hand, they may not be
able to present the same level of recovery posted by the cleared banks due to the
alleged precarious situations of their financial positions. On the other hand, they may
not be able to declare results at all as to do so would require them to hold an AGM
which as things stand, may be a difficult thing to achieve given the way events had
evolved.
The International Financial Reporting Standard being adopted in the sector is expected to
bring to bear on the system a level of transparency which will give the investing public
more confidence in the financial reports of banks - strengths or weaknesses. Most
importantly, when viewed within the context of a common accounting year end date; it
Following from this must be the expectation from the investment community on the
Asset Management Company being floated by the Central Bank of Nigeria in conjunction
with the Federal Ministry of Finance and backed by the Nigerian Stock
Exchange/Securities & Exchange Commission. The bill has passed through the
legislature and is now awaiting a synchronisation of the bills from the both the lower
and upper house. It must be noted that though the bill is not touted as representing a
cure all for the sector ills; its successful establishment should however go a long way to
providing the much needed respite to the sector, and indirectly to the economy – by
easing liquidity into the system (ceteris paribus). The bill is not without its critics who
question the operational structure, pricing of debts model and disposal issues; partly as
a result of the non-availability of the proposed bill to a wider audience.
Of interest must be the Central Bank of Nigeria’s policy on reviewing the practice of
Universal Banking. This has thus become a factor in the re-shaping of the banking
industry/Sectoral outlook in the coming days – 2010 to be precise – as the group
structure of banks are adjusted to reflect these new realities. Subsidiaries, affiliates and
associated companies will have to be reined in or extricated from pure banking
operations under different models to meet the demands of the new regulatory regime.
It should be noted that a combination of regulatory/supervisory inertia coupled with
misapplication of the concept by banks created the condition under which deposit-based
banks got entangled in linked and synergetic businesses which, left unregulated or
effectively supervised created conditions that impacted on the outcomes we have. It is
hoped that not a few institutions will have to revisit their business strategy and models
to meet this development.
In the closing month of 2009, banks, faced with the challenge of remaining in business
Profitably resorted to laying-off staff, partly to help reduce their operating expenses; but
in the main, to streamline operations relative to the business available now and
foreseeable. This caused some tension in the industry as it soon became widespread
and with such severity that it became a matter for national discourse. Some banks
refrained from this approach, perhaps on the strength of their belief in their business
model; and this went on till late January 2010 when it abated for a while and continued
in April/May 2010 with one of the banks seeking recapitalisation.
The staff issues soon paved way for the CBN policy on terms and tenures for MD/CEO’s of
banks which led to the forward dated exits of three pioneer chief executives of UBA,
Zenith and Skye Banks. This development was professionally well managed by these
institutions that complied with the directive and stabilised their institutions with the
announcement of successors in days and weeks; and ultimately sign-posted a positive
shift in the change management initiative embarked upon by the CBN. The newly
appointed MD/CEO’s have since been approved by the CBN and we can expect a
seamless transition.
The swing of operator focus is now of flight to quality as against flight to safety slogan.
Much emphasis will now be placed on quality on all fronts in the sector and no bank will
want to be seeing defaulting in delivering on quality platform. The imperative for quality
cuts across all the strata of banking businesses and quality of items on their financials
will be of paramount focus to the investing public.
Nigerian banks since then have taken steps to introduce and/or strengthen the
processes and practice of sound corporate governance and leadership succession in
their institutions.
Metrics (Audited) ACCESS FBN GTB UBA ZENITH SKYE IBTC FINBANK DIAMOND Ecobank Fidelity Sterling FCMB Unity
Market Price 8.93 14.65 16.98 12.37 15.3 8.8 10.5 0.55 7.98 5.28 2.95 2.1 8.25 1.11
EPS -0.27 0.11 1.52 0.11 1.21 0.1 0.43 0.06 -0.56 - 0.64 0.054 -0.72 0.000 -1.09
DPS 0.00 0.10 0.75 0.10 0.45 0.05 0.30 0 0 0.00 0.025 0 0.05 0
Dividend Payout 0.00 90.91% 49.34% 90.91% 37.19% 50.00% 69.77% 0.00% 0.00% 0.00% 46.30% 0.00% 145.21% 0.00%
Dividend Yield 0.00% 0.68% 4.42% 0.81% 2.94% 0.57% 2.86% 0.00% 0.00% 0.00% 0.85% 0.00% 0.59% 0.00%
PE Ratio -33.07 133.18 11.17 112.45 12.64 88.00 24.42 9.17 -14.25 -8.73 54.63 -2.92 245.41 -1.02
Earnings Yield -3.02% 0.75% 8.95% 0.89% 7.91% 1.14% 4.83% 10.91% -7.02% -11.46% 1.83% -34.29% 0.41% -98.20%
PAT Margings -6.66% 1.63% 14.57% 0.96% 7.43% 0.89% 13.61% -206.90% -12.02% -7.66% 4.48% -19% 1.58% -34.71%
Shares in issue (Bn
16.437 29.01 23.31 21.56 31.39 11.58 18.75 16.721 14.475 7.218 28.963 12.563 16.38 14.737
units)
http://www.proshareng.com/investors/company.php?ref=FIRSTBANK
© 2010 www.proshareng.com 11
Price movements of stocks in the banking sector in 2010 have been positive some of
the banks have recorded positive performance. Stocks that recorded negative
performance of different magnitude were Ecobank Nigeria Plc -47.72%, Union Bank
Nigeria Plc-23.68%, Afribank Plc-13.99% and Oceanic Bank Plc- 4.52%, while First
Inland Bank Plc recorded 0% appreciation. First Bank Nigeria Plc – the subject of this
report, placed fourteen position in the year to date appreciation ranking with a
+4.64% price growth.
© 2010 www.proshareng.com 12
relatively beer Tier 1 CAR – this will prove crucial should
an acquisition opportunity present itself.
Possible write back on loans depending on the This has started with a write back of N1.5bn in Q1 2010
speed of economic recovery. returns. What happens next in this regards will further
justify this claim.
Cost optimisation initiatives as contained in The reality of spike in operating cost is still much evident.
the Q2 2009 presentation First bank Nigeria Plc is still one of the banks with
deteriorating financial efficiency. This may be showing
indications that the initiatives are either not yet
implemented or are not working.
Focusing on low cost liability generation and As at the latest results of the bank, the cost of generating
maintaining an optimal funding profile the assets of the bank still remains on the high side. The
cost of funds in the books of the bank spiked sharply
higher.
Strategy aimed at building strong deposit base This could be seen in the trend of deposits liabilities in the
book of the bank. The bank is still a force to reckon with in
terms of deposit growth.
Unparalleled reputation for leadership, This is now up in the air and there are a few areas of this
strength and stability. indicator that they bank will be challenged on at this time –
profitability, returns to the investors - EPS, and strength.
Leaders in Corporate Governance This is directly reflected in sound risk management, an area
much improvement is desired.
Branch Expansion The bank can be adjudged one of the banks with the widest
branch networks with the number of branch standing at 610
– a key player in market share.
Gross Earnings and Profitability: The bank in the period under review recorded
gross earnings totalling N196.408 billion to close marginally below the gross earnings
figure recorded for the period ended 31st March 2009 by -9.75%. Profit after tax for
the same period nosedived by -74.63% from N12.569 billion recorded as at 31st
March, 2009 to close at N3.189 billion. Annualising the figures gave 20.33% growth in
gross earnings. The management attributed the growth to growth in the bank’s average
earnings assets.
Comparing the result with the 31st December, 2008 results figures as presented by the
Management of the bank showed revenue growth by +28.79% from N152.50 billion to
close at N196.408 billion. Profit after tax for the period however declined massively by -
90.56% to close at N3.2 billion from N33.9 billion recorded as at 31st December, 2009.
The result showed a woeful performance in the bank’s profitability. The trend recorded
in the nine months period showed indications that the bank would most probably have
had the same heavy decline in profitability if it were to release its results to March 31st,
2010. The earnings per share (EPS) of the bank at the moment stands at 11k, far
below 51k recorded as at 31st March, 2009 by -78.43%. The decline in the bank’s
profitability could be attributed to the effect of heavy loan loss provisions, the cost of
deferred taxes besides the overriding impact of rising cost profile.
Other factors according to the Management of the bank are the bank’s strong focused
on cheaper demand and saving deposits. Increase in the bank’s distribution network
could also be considered another factor that aided deposit growth.
However, there was a decline in the net interest margin to +59% in the nine months
period to December 31st 2009 from +64% of the previous year twelve months – an
indicator of a high cost of funds.
2006
Loan Loss Expense (Provisions): The unexpected N42bn loan loss provisions that
appeared in the book of the bank contributed to the decline in the profitability position
reported. But for the loan loss provision, the bank would still have had a higher
profitability figures at the close of the nine months period. This surely brings to
fore the challenged of risk management during the period under review – a lifting of the
veil on ever-greening of accounts by the CBN has been fingered as the reason for the
unexpected provisions and it is not expected to continue.
Business Segment Contribution: All the business segments of the bank, when
annualised recorded profitability decline of different magnitude. Mortgage Banking
recorded the highest decline of 79.55%, followed by Retail & Corporate banking
with 76.90% while Investment and Capital market segment dropped by 72.55% in
the period. The loss position of the segments when compared with the previous trend to
December 31st, 2008 shows there may need for reappraisal of these segments for
improved performance.
Comparing the nine months result released for the period ended 31st December, 2009
with the preceding year twelve months results, Gross Earnings declined by 9.75%
to close at N196.408bn compared with N217.630bn reported in the twelve months
period to March 30th, 2009. The bank reported decline in profit before tax by 78.47% to
close at N11.59bn compared with N27.69bn recorded in the twelve months period to
March 31st 2009. Profit after tax dipped much more to N3.189bn from N12.569bn
recorded in the preceding reported period.
When annualised, gross earnings would record growth by 20.33%, and profit before tax
and profit after tax would record decline by 71.29% and 66.17% respectively. This may
The declining trend in the bank’s profitability is showcased in both PBT and PAT margins
for the period, following the trend of profitability. The trend has definitely created a run
on the earnings per share (EPS) of the bank as depicted by the chart below.
The net interest margin of First Bank Nigeria Plc closed lower of the preceding reporting
period figures. While some other banks recorded uptrend in their figures, First Bank
FBN’s loans and advances figures as at 31st December, 2009 rose by 45.66% when nine
months figures to close at N1.078trillion from N740.397bn recorded as at 31st March,
2009. Annualising the figures posted 94.21% growth. Loan to deposit ratio in the last
six accounting periods apart from a decline to 36.35% recorded in 2007 has been on
the consistent growth till date.
Total assets of the bank after the 67.67% growth recorded in 2008 financial year has
been on the decline trend. The total assets recorded a marginal growth of 8% in the
period under review. Close observation of the figures showed that items such as Cash
and Bank balances, Due from other banks, Treasury bills and advances under finance
lease posted lower figures.
Earnings Performance
The banks return on equity and return on assets as at March 31st 2009 stood at 3.73%
and 0.63% respectively, decreased by 6.67% and 1.82% respectively as compared to
March 2008. However, as at December 31st, 2009 return on equity and assets declined
further to 1.03% and 0.15% respectively. These decline figures were as a result of the
drop in the bank’s profitability.
First Bank shareholders’ fund assumed a decline status since March 31st 2009
accounting year with -4.11% and -8.25% declines for March 31st 2009 and December
31st 2009 respectively. The impact of huge non-performing loans and consequent loan
loss provisions is felt in the shareholders’ fund.
The bank’s capital adequacy has been on the decline trend since March 31st, 2009
financial year.
This is not unconnected with the high level of risk posed against the capital and assets
of the bank due to huge non-performing loans in its books. First Bank’ CAR as at 31st
December, 2009 stood at 15.80%
:
Revenue and Profitability Gross earnings in the quarter recorded a negative growth
of -10.65% to close at N62.399 billion compared with N69.839bn recorded in the
preceding year comparable period. Declines recorded in interest earnings and all the
other income components contributed to the decline recorded. Profit after tax also
declined by -3.63% to close at N12.336bn from N12.800bn recorded in the previous
year’s comparable period. The EPS consequently declined marginally from 43.39k
reported in the preceding year to 43k.
Return on Assets and Return on Equities: First Bank Nigeria Plc Return on Assets at
the end of the quarter dropped to 0.54% from 0.59% in the preceding comparable
period. Return on equity followed the same trend, closing lower at 3.99% from 4.13%
of the preceding comparable period.
Deposits and Loans & Advances: The bank’s deposits in the first quarter of the year
recorded growth by 5.05% to close at N1.406 trillion compared with N1.339 trillion
recorded in the preceding year comparable period.
First Bank Nigeria Plc in the last sixteen months to May 21st, 2010 recorded -30.24%
to close at N14.65 from N21.00 it closed at the end of January 2nd, 2009 trading
session. This trend placed First Bank Nigeria Plc as one of the top fifteen banks in the
sector which have recorded price depreciations below their January 2nd, 2009 price
levels. With this trend, First Bank now stands in the 10th positions in terms of price
performance.
In the same vein, in the year 2009 alone, the share price of the bank closed with -
33.09% depreciations, almost the same rate of depreciations of -33.80% recorded in
the entire market in the period. This negative stock price performance indicates that
investors are concerned about the banks affairs. Comparing the performances of some
other banks that recorded appreciations of different rates within the same period, they
recorded wide margins above the First Bank price trend: Guaranty Trust Bank Plc
topped with +19% appreciations followed by FCMB Plc with +16% appreciations.
Access Bank Plc and Diamond Bank Plc recorded +4% appreciations each.
In the year 2010, the bank as at 21st May, 2010 recorded year to date marginal
appreciation of +5% which is far below +11.80% sector average appreciations for the
same period. The trend so far in the price movement of the shares of the bank shows
that the share of the bank is one of the least performing stocks in the sector, emerging
in the thirteenth positions in the sector.
The All-Share Index and First Bank Nigeria Plc share price are moving almost in the
same direction . In the year 2009 alone, the share price of the bank closed with -
33.09% appreciations, compared with -33.80% depreciations recorded in the entire
market in the period.
In the year 2010, while First Bank Nigeria Plc share price appreciated marginally by
+5%, All-Share Index has recorded year to date appreciation of +28.61%. This shows
First Bank Nigeria Plc performed both below ASI and the entire banking sector
performance in the current year alone.
As illustrated from the graph below, the First Bank Nigeria Plc share price now trades
below its 20 days, 50 days and 200 days moving averages of N15.43, N15.92 and
N14.96 respectively.
Technically, First Bank Nigeria Plc share trading below its 200 days moving average
seems to suggest that the bank has not yet assumed bullish outlook, still within the
confine of bearish trend. This not too impressive outlook further lends credence to the
fact that FBN price performance is far below expectation.
The price moving average trend showed that FBN Plc share price shows inconsistency
as it fluctuates in and out of the 200 trading days’ region.
FBN, as seen from the review carried out has to re-calibrate its operations to recognise
not only the problems that challenged it during the reporting periods, but the changing
face of the industry, customers, processes and platforms as well as the regulatory
environment. It would have to earn those claims that had become clichés used to
describe the bank. Things have changed.
One of the many concerns that is now receiving management attention is the
reoccurrence of huge loan loss provisions which impacted the bank’s profitability and
significant ratios. This, no doubt has negatively affected the investors’ view of the bank
in the recent time - as seen in the performance of the bank’s stock price in relation to
its peers.
As at the close of trading on 24th May, 2010, First Bank Nigeria Plc emerged in the class
of banks that still traded below their January 2nd, 2009 prices.
First Bank Nigeria Plc, in keeping up with an industry practice (may or may not be
unconnected with the requirements for eligibility to play the pensions fund market – the
declaration of dividend or/and bonus every year); gave out a scrip issue to shareholders
with 1 for 8 bonus issue – thus adding to an already bloated shares in issue.
While the branch expansion and drive for size is welcome, the management may need
to be mindful of not pursuing these much-needed structural changes at the expense of
operational efficiency, service quality and profitability. Any of the business segment and
or branch that are not adding value to the group in a sustainable and synergetic
manner must be re-appraised for the bank to remain competitive.
Given that the bank is focussing on building critical mass in strong growth businesses in
the non-bank financial services sphere, it is crucial for the bank to avoid a collision with
the CBN or competitors as the industry enters a new regulatory environment on
Universal banking.
We expect FBN to sustain and improve on its Q1 2010 performance based on the
representations made by management.
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