First Bank Holdings gross earnings upturn on investment in securities

First Bank Holdings Plc’s gross earnings have upturned in the period under review, thanks to increase in investments on securities as lenders in Africa largest economy are entangled in a perverse operating environment.

For the first nine months through September 2015, First Bank Holdings’ gross earnings increased by 16.90 percent to N390.0 billion from N333.60
billion last year.

The upsurge at the top lines was supported by a 47.10 percent jump in investment securities, 7.50 percent rise in income on loans and advances to customers and 34.80 percent spike in advances to banks.

Interest income grew by 17.50 percent to N300.38 billion in 2015 as against N255.72 billion in 2014. Net interest income moved by 13.50 percent to N82.50 billion.

Despite First Bank Holdings impressive performance at the top lines, analysts see the Nigeria lender and its peers have growth stunted in 2016 on the back of multiplicity of regulations and restrictions imposed by the central bank, lower oil price, depletion of foreign reserves and increasing inflationary pressures.

The Abuja based bank has restricted foreign-exchange trading to stabilize the naira and regulate an economy grappling with more than 70 percent fall in the price of oil.

The currency of Africa largest economy has been fixed at bout N198-N199 since March last year while foreign reserves have dropped by 15 percent this year at its current value of $29.34 billion, compared with $34.49 billion as at January.

While regulators controls have helped stabilized naira amid economic doldrums, analysts say such measures however is causing liquidity squeeze and also hurting profits of banks.

“What we clearly see is a very tough half year,” the Chief Executive Officer, FCMB Limited, Mr. Ladi Balogun, who heads the nation’s ninth largest lender by market share, said in an interview with Bloomberg in 2015 in Lagos.

“It is important that we restore liquidity in the foreign exchange market as quickly as possible.”Our hope is that as we get better on our balance of payments generally some of these restrictions will be relaxed.

When there is pressure on the currency, we all have to pay the price. The banks are paying the price of reducing the level of foreign exchange trading that they are doing.” Balogun said. Investors have withdrawn money from the system on the fret that an abrupt devaluation of the naira may cause loss of significant investment.

The central bank has refused tom succumb to pressures to devalue the currency and ease liquidity flow. An Industry expert who craved anonymity said First Bank Holdings and other lenders should brace for a tough times as the Abuja based bank has announced the gradual phase out of Commission over Turn Over (COT). This new policy he said would dampen banks interest income hence a drain to future earnings.

The Abuja Based bank has stand down COT from N3 per mile in 2013, to N2 per mile in 2014, N1 per mile in 2015 and nil zero COT in 2016.

Further analysis of First Bank Holdings financial statement showed net income dropped by 9.72 percent to N50.21 billion in 2015 as against N55.26 billion last year.

The drop in net income was caused by a 249.02 percent surge in impairment charge on credit losses stoked by huge write offs. The bank’s costs to income ratio (CIR) were down to 61.40 percent in 2015 as against 65.20 percent; driven by a 10.80 percent rise in operating income over expenses. A lower CIR also means a lender has minimized costs while pursuing its strategic objective of maximizing profits.