Nigeria’s flagship bank, First Bank of Nigeria, is taking on the regional West African market with consummation of strategic acquisition that adds four countries to its footprints.
FBN Holdings Plc, the holding company for First Bank of Nigeria Limited (FirstBank), accounts for some 12 per cent of the entire financial services sector. There are 56 financial services companies quoted on the Nigerian Stock Exchange (NSE) including 12 commercial deposit money banks, 29 insurance companies, two microfinance banks, four mortgage bankers and nine other financial services firms. The overall technical importance of First Bank is better appreciated within the context of the general market situation. At opening value today, FBN Holdings is bigger than each other sector and sub-sector on the NSE with the exception of its financial services sector, oil and gas sector, consumer goods and industrial goods sectors. Technically, FBN Holdings, on its own, holds significant influence on the overall market situation than several other individual sectors such as agriculture, construction, information and communication technology and healthcare among others. With capitalisation more than three times the size of entire populous insurance subsector, FirstBank’s pricing trend will exert more influence on overall market situation than the collective trend in several subsectors.
Fundamentally, FirstBank is Nigeria’s largest bank. Interim report and accounts of FBN Holdings for the period ended September 30, 2013, which was based on the audited reports of major companies within the group, showed that gross earnings grew by 11.4 per cent to N290.8 billion in 2013 as against N261 billion recorded in corresponding period of 2012. Profit before tax stood at N70.1 billion compared with N75.7 billion in 2012. Profit after tax stood at N59.1 billion as against N64.3 billion.
Key balance sheet items underlined the continuing expansion and penetration of the group with total assets of N3.7 trillion by September 2013, 14.6 per cent above N3.2 trillion recorded by December 2012. Total customer deposits rose by 16.6 per cent from N2.4 trillion in December 2012 to N2.8 trillion in September 2013. Also, total customer loans and advances stood at N1.6 trillion, an increase of 4.5 per cent on N1.5 trillion recorded by December 2012. With total assets of N3.7 trillion and customer deposits of N2.8 trillion, FirstBank ranks among the largest corporate and retail financial institutions in Sub-Saharan Africa.
Diversified business base
Beyond the technical and fundamental figures, the structures and operations of FBN Holdings and FirstBank lend credence to its leading position. The most diversified financial services group in Nigeria, FBN Holdings operates products and services across commercial banking, investment banking, insurance and microfinance business in seven countries including its primary market and head office- Lagos, London, Paris, Johannesburg, Beijing, Abu Dhabi, and Democratic Republic of Congo. While the group rests primarily on FirstBank, other subsidiaries include FBN Capital, a leading investment banking and asset management company; FBN Life Assurance, a life insurance business; and FBN Microfinance Bank, which offers microfinance services. With some 1.3 million shareholders, FBN Holdings has the largest shareholders’ base.
The recent announcement of FirstBank’s expansion into West Africa through the acquisition of some of the operations of International Commercial Bank (ICB) marked a milestone in the expansion of Nigerian financial services companies within the sub-region and Africa generally. While African expansion has been at the forefront of Nigerian bankers’ strategies since mid 2000’s, FirstBank had cautiously concentrated on organic growth and consolidation of its domestic base. The strategy had worked out perfectly. While several Nigerian banks that had opened or acquired foreign operations in many African countries were either acquired or liquidated in the following financial and economic meltdown, FirstBank had further consolidated its leadership.
Expanding from a
position of strength
So why has the bank now decided to spread its wings beyond the shores of Nigeria? According to the management of the bank, the acquisition of ICB operations in West Africa is the next stage of growth and provides a strong geographic and commercial base from which FirstBank can continue to grow progressively in Africa. With operations in Guinea, Gambia, Ghana and Sierra Leone, ICB provides FirstBank with a strong geographic platform for growth and an established customer base across the mid-corporate, small and medium enterprises (SME) and retail segments that complement the bank’s existing strategy in Nigeria. ICB has over 600 employees and 120,000 customer accounts spread across these four markets. ICB also operates in markets with major investments in key growth sectors on the continent, most notably the major mining industries that are prevalent in Guinea and Ghana and emerging in Sierra Leone as well as positioned for the commercial operations in the emerging oil and gas opportunities in Ghana and Guinea. It should be noted that FirstBank had in 2011 acquired BIC in the Democratic Republic of Congo, starting its progressive and case by case approach to inorganic growth opportunities. Since acquiring BIC, the bank has successfully managed an integration process that has incorporated BIC into FirstBank’s operations while delivering short term improvements in financial performance as well. This is the strategy that it will further deploy to harness and integrate the synergies and opportunities presented by the latest ICB acquisition.
While many Nigerian banks are now actively expanding across the African continent and are implementing diverse business models as they seek to maximise growth, FirstBank’s approach customarily reflects its progressive approach. Its approach is rooted in the multi-local business model which ensures that the best of local culture and experience is mixed with the banking expertise the bank has built up over more than a century of operations. A multi-local business model is designed to ensure the markets where FirstBank is expanding retain the local culture and approach that make them an integral part of the local economy. By ensuring each FirstBank business across the continent adopts a locally led approach, while leveraging the international reach and experience of the parent company, the bank believes it can engender a long term sustainable approach to doing business in new markets, Africa in particular. “We are committed to developing a multi-local business model that broadens our geographic revenue base while providing enhanced service delivery to our new customers,” Group Managing Director, First Bank of Nigeria Limited, Mr. Bisi Onasanya reiterated on the confirmation of the acquisition of the ICB assets. According to him, the acquisition of ICBGFH assets in Ghana, Guinea, Gambia and Sierra Leone fulfilled the first stage of the bank’s ambitions to steadily build broader and more diverse footprints across Africa.
The new acquisition would also strengthen FirstBank against increasingly tough domestic operating environment and secure new markets for stronger growth momentum. In its latest ‘Banking Industry Country Risk Assessment (BICRA)’ on Nigeria, Standards & Poor’s Ratings Services had outlined operating challenges confronting Nigerian banking industry amidst the lop-sided economic system and deficient infrastructure. “The Nigerian banking sector has undergone two major consolidation periods in the past 10 years. In our opinion, the second phase is close to an end, although the future of the three quasi-nationalized banks remains unclear. As the new industry landscape clears, we expect competition to increase and the sector to continue to organize itself into three distinct tiers. Most rated banks are in the upper and middle tiers. Positively, with 21 banks operating in the sector, we don’t believe there is any significant overcapacity because of inherently low leverage and retail penetration, as well as strong long-term economic growth fundamentals. We anticipate stiff competition, however, on at least two fronts: attracting low-cost retail deposits in a country with low banking penetration, and banking large corporates together with their staff, third-party suppliers, and distributors. We believe foreign banks will continue to attempt to enter the sector in 2013-2014, but barriers to entry remain high for banks without significant capital or scale,” the report outlined the industry stability outlook. Both the challenges and opportunities represent better prospects for FirstBank with its large domestic scale and built-up retail base as well as the new openings presented by the ICB acquisition.
Onasanya said the ongoing domestic initiatives aimed at optimizing benefits of recent investments and countering pressures induced by regulatory changes would complement the bank’s expansionary drive to deliver greater earnings diversification and increase shareholders’ value through higher returns on equity among other benefits.
Looking forward
In the recent operational review, chief executive officer, FBN Holdings, Mallam Bello Maccido said the group has remained resilient in spite of the adverse impact of recent changes in regulatory policy on the banking industry, especially the increase in the minimum savings deposit rates as well as the removal of the Automated Teller Machine (ATM) withdrawal fee.
According to him, in spite of the significant regulatory headwinds, the performance of the group has remained resilient as it continues to build its portfolio of businesses; expanding existing revenue streams and creating new lines of business such as mobile insurance and Bancassurance.
He noted that the group further expanded into new geographies, particularly within the commercial banking business, where it sees significant opportunities.
“In the coming year, we will expand the insurance business to include general insurance, evolving our insurance business into a composite one. In the medium term, we aim to increase the contribution of our non-bank businesses; working on fostering increased collaboration to exploit the strong natural synergies and cross-selling opportunities that exist between banking and the other financial services sectors we are active in with the aim of improving overall returns to shareholders,” Maccido said.
