FIRST BANK PLC: Impressive performance in Q3 2014 amid operating challenges

Indeed it has been a changeling year for banks in Africa largest economy Nigeria but one lender that has been weathering the storm is First Bank Nigeria Holding Plc (FBN Holding). Nigeria’s foremost lender, through its savvy and astute management team has been able to record impressive performance despite the Central Bank of Nigeria’s tightening policies.
For the first nine months through September 2014, FBN Holdings gross earnings increased by 13.21 percent to N332.615 billion from N295.563 billion the same period of the corresponding year (Q3) 2013.
The spike in gross earnings was as a result of a 6.92 percent increase in interest income to N255.72 billion from N239.16 billion the same period of the corresponding year of 2013.
The impressive top line financial performance of the bank is coming amid the multiplicity of regulatory induced costs such as the Asset Management Corporation of Nigeria (AMCON) charge of 5 percent of banks total assets.
Despite these challenges and impediments, FBN Holding in the third quarter of 2014, recorded a 2.35 percent increase in net interest income to N176.50 billion from N172.43 billion the preceding year while net interest expense rose by 18.73 percent to N79.23 billion as against N66.73 billion the preceding year.
Operating income jumped by 12.61 percent in the review period to N240.01 billion from N213.31 billion the preceding year, fuelled by a 239.60 percent increase in foreign exchange income to N17.15 billion, as against N5.05 billion last year; and a 16.27 percent increase in fee and commission income to N51.22 billion, as against N44.05 billion the preceding year.
Operating expenses were up by 15.37 percent to N160.82 billion in 2014 compared with N139.39 billion in 2013, which analysts attributes to costs incurred on expansion of operations such as opening of new branches, acquisition of new technologies.
Analysts also added that the cost of diesel oil used in powering plants to run operations accounts for some of the large chunk of lenders’ overhead costs, which apart from the regulatory induced costs and the tightening stance of the CBN, bleeds banks profits.
Despite cost pressures, profit before tax (PBT) in the period under review increased by 5.23 percent to N73.74 billion, compared with N70.01 billion the same period of the corresponding year 2013; while operating profit jumped by 15.35 percent to N160.82 billion as against N139.40 billion the preceding year.
Profit after tax (PAT) reduced slightly by 5.85 percent to N55.62 billion in Q3 2014 from N59.08 billion the preceding year caused by a 65.02 percent surge in income tax expense to N18.12 percent as against N10.98 billion.
Strong and improved asset quality
The bank has a strong balance sheet as total assets increased by 8.26 percent to N4.19 trillion from N3.87 trillion the preceding year, helped by growth in deposits and long term borrowings. With an asset base of over N4 trillion, FBN Holding remains the largest bank in Nigeria, ranked by asset size.
Total loans and advances to customers were up by 14.64 percent to N2.02 trillion in the review period as against N1.77 trillion last year. The large chunk of these loans were made to corporate (Oil & Gas downstream, Oil & Gas services, Commercial Property and Hotel & Leisure) and retail customers.
Analysts say that the devaluation of the country’s currency could further spike lenders loans and advances as the dollar denominated loans to Oil and Gas services may spiral.
It should be noted that the repayment of loans by firms in the Hotel and leisure industry may be crimped as cash flows have been hollowed by the Ebola endemic and the political insecurity in the northern part of the country.
Total deposits from customers in the period under review remained flattish at N2.9 trillion which analysts say is relatively impressive given the intense competition the bank faced from its peer rivals.
The improved deposit base also shows the confidence reposed in the Group by the public, the strength of the brand, continued widening and deepening of the large customer base, multiple service channels, enhanced customer segmentation and innovative solutions to meet clients’ needs. The bank is aggressive about lending as loans to deposit ratio moved to 69.69 percent compared with 61.34 percent the preceding year.