First Bank of Nigeria (FBN) Holdings, has analyzed its profit margin in 2022 and what is expected of the financial institution by the end of 2023 and subsequent years.
In the thrilling floral report of 2022, despite the stringent and suffocating policies imposed on financial institutions, the earnings per share experienced a remarkable surge of 234%, reaching N5.19.
Despite the impact on Shareholders in FBN, the bank managed to surpass expectations and achieve a significant increase in share earnings. This accomplishment reflects the commendable management strategy of the commercial institution.
FBN was one of the financial institutions to enter into Sub Saharan African Market late (Late entrant to African Markets), yet it was still able to catch-up with its competitors. In the last few years, FirstBank has been able to expand its international footprints not only across Africa but also in Europe’s and Asia with branches in the major markets of the United Kingdom, China, and Ghana.
Whilst still maintaining the reputation of the oldest, strong and sound bank in Nigeria, FBN holdings has successfully transited into the modern digital space through its huge investment in Internet Banking, with a readiness to compete aggressively with its younger peers.
Most of the performance ratios especially its cost-to-income ratio of 46.8% coming down from a high of 70% four years ago reveals that its cost reduction and resource optimization strategy is paying off.
Utilizing Economies of Scale stands as a fundamental approach for FirstBank, which possesses 595 branches, making up 13% of all bank branches, and 13% of all Automated Teller Machines (ATMs) in Nigeria. The bank has consistently harnessed the benefits of economies of scale, its lengthy presence in the industry, and strong reputation to actively acquire customers.
With a customer base of over 42 million, FirstBank processes 12% of the Nigerian banking industry’s payment volume.
The bank’s current deposit portfolio of N9 trillion is one of the best in the Nigerian banking industry. The group is also reaping the benefits of crossentities collaboration as well as increased earnings contribution from international subsidiaries (30.0% in FY’22 compared to 25.5% in FY’21).
Read: FirstBank Commissions Second Fully Automated Self Service Branch, Unveils Digital Xperience Centre In University Of Ibadan
While Translation Gains Have Provided an Advantage, Potential Growth Might be Impeded by Transaction Losses. Financial institutions holding substantial dollar positions might experience initial translation gains. However, if they later accumulate non-performing dollar assets, these earlier translation gains could transform into transaction losses in the future.
FirstBank recorded a revaluation loss of N98bn due to huge naira devaluation stoked by the Foreign Exchange policy changes. However, the impact on the bank’s profitability was cushioned by over a 1,000% surge in fair value gains. FBNH’s exposure to foreign currency risk was mitigated by a decline in foreign currency (FCY) loans from 51.2% in FY’22 to 50.4% in Q1’23.
Strategy Consistency is Impacting Share Price Appreciation
The share price of FBNHoldings has increased by an average of 131% per annum in two years to N18.65, returning enormous value to shareholders. The valuation remains attractive with a price-earnings multiple of 2.55x and an estimated fair value of N19.25. Earnings per share (EPS) at N5.19 Vs N1.55 in H1’22.
Are There Inherent Weaknesses?
FirstBank is poised to keep creating value for shareholders with a reorganised balance sheet position and a refocused management team. Though the impact of FX unification remains a major concern to Nigerian banks’ profitability and liquidity, FBNHolding’s long position in dollardenominated assets gives it an edge. We also anticipate an increase in trading activities by the bank in the event of a drop in the backlog of FX requests and an influx of new foreign transactions.
This has the potential to lead to higher trading volumes, an uptick in earned commissions from trades, and increased profits from foreign exchange sales. Anticipations are high for the bank’s favorable performance throughout the entirety of 2023. The prevailing environment of rising interest rates will contribute to an improved net interest margin, while robust e-banking operations will foster substantial growth in non-interest income. Furthermore, the bank’s adept operational and risk management systems are expected to enable it to sustain a healthy asset quality well within regulatory standards.
FBN Holdings Plc (FBNH) remains a top player in the industry with a strong franchise, reliable funding structure and brand recognition, robust customer base, unique E-business and agency capabilities, contributions from overseas subsidiaries, and a newly re-organised management team.
In the memo released, FBN holdings has rolled out couple of expectations from its banking sector to satisfy its customers and maintain legacy and as well improve the company’s income.
“We expect that the field will narrow after a possible increase in the minimum capital requirements in the industry as impairment of profitability resulting from non-performing loans begins to hurt industry players. We also expect big and solid institutions like FBNHoldings to be in a position to gobble the smaller and less viable rivals. The name of the game in the next few years will be ‘’the survival of the fittest’’.