FBN Holdings Plc, the holding company for First Bank of Nigeria (FBN) and its former subsidiaries, may consider acquiring other Nigerian and non-Nigerian assets that strategically fit into the holding company’s business and have high potential to add values and increase returns to stakeholders.
Head of finance, FBN Holdings Plc, Mr. Oyewale Ariyibi, in an interactive media session with select senior journalists, said while the group has no immediate plan for acquisitions, it will consider opportunities that will enhance the group’s performance and further strengthen its business profile.
FBN Holdings had recently made a string of acquisitions including International Commercial Bank (ICB) West Africa, Oasis Insurance and Kakawa Discount House Limited. FBN Life Assurance Limited, an insurance subsidiary of FBN Holdings Plc, had acquired about 4.63 billion ordinary shares of 50 kobo each of Oasis Insurance from the previous core investors-Oasis Group Limited and MetroWest Investments Limited. The sale transferred the majority 71.2 per cent equity stake in Oasis Insurance to FBN Life Assurance. Oasis is quoted on the Nigerian Stock Exchange (NSE). With the acquisition of 71.2 per cent, FBN Life had also launched a mandatory take-over bid to the remaining shareholders of Oasis insurance in line with section 131 of the Investment and Securities Act (ISA) and Rule 445 of Securities and Exchange Commission (SEC)’s Rules and Regulations.
With operations in Guinea, Gambia, Ghana and Sierra Leone, ICB provides First Bank 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 First Bank 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 First Bank’s operations while delivering short term improvements in financial performance as well.
Ariyibi noted that the focus in the immediate term will be on the integration of the acquired assets to ensure the group derives maximal benefits from the assets pointing out that the group is optimistic that it would start reaping immediate benefits from the acquisitions given their strategic fit into its existing businesses.
According to him, the acquisitions were part of the strategic plans of the group aimed at complementing existing businesses and strengthen the group’s leadership. The acquisition of ICB will enable the group to integrate banking services across West Africa and further support businesses across the region. The acquisition of Kakawa Discount House offered a unique blend of fixed-income origination and distribution which fit into the group’s business and allow it to increase the size and diversity of products offering. The acquisition of Oasis Insurance brought the retail insurance to complement the group’s leadership in life insurance, giving the group higher penetration.
“Between now and 2016, we do not have plan to acquire, we will focus on integration of the acquired assets to get benefits from them. But if our strategic and business development unit sees any asset that will be a strategic fit, then it will go through the entire gamut of review process, if it would add value to the business and stakeholders, then we may consider that,” Ariyibi said.
He said FBN Holdings has been able to moderate the adverse impact of regulatory headwinds through increased internal efficiency, pointing out that the third quarter earnings of the bank underlined the improvements in its operational efficiency.
Citing earnings headlines, he added that the third quarter earnings reaffirmed First Bank’s position not only as the largest and biggest bank in terms of network and assets, but the strongest supporter and financier of the productive sector.
Key extracts of the nine-month report of FBN Holdings for the period ended September 30, 2014 showed improvements in the group’s top-line and pre-tax profit, although net profit remained suppressed by higher tax provisions. Group profit before tax rose to N73.75 billion in third quarter 2014 as against N70.07 billion recorded in comparable period of 2013. The bottom-line performance was driven by appreciable improvement in the top-line. The group’s core commercial banking activities picked up considerably during the period with interest income rising from N239.16 billion in September 2013 to N255.72 billion by September 2014. Net interest income rose to N176.49 billion in 2014 as against N172.43 billion in 2013.
Further analysis of the top-line showed growths across the segments. Fees and commissions incomes rose from N44.05 billion to N51.22 billion while foreign exchange income increased from N5.05 billion to N17.16 billion. With 65 per cent increase in income tax expenses from N10.99 billion to N18.12 billion, net profit after tax was slightly depressed at N55.63 billion in September 2014 compared with N59.09 billion recorded in corresponding period of 2013. The group’s balance sheet size built up to N4.19 trillion in September 2014 compared with N3.87 trillion recorded as total assets in December 2013. Shareholders’ funds also rose from its 2013 year-end position of N471.78 billion to close September 2014 at N493.67 billion.
He said FBN Holdings has returned the best dividend growth over the past five years with a cumulative annual growth rate of 16 per cent for dividend payout over the past five years.
“What we do is to ensure we sweat the capital and ensure we get adequate returns. If you look at our results from 2010 to 2014, in terms of dividend payment payout, we have paid 10, 60 kobo, 80 kobo, 100 kobo and 110 kobo in the last five years. If you look at that, that gives a cumulative annual growth rate of 16 per cent dividend payout, there is no other company that can boast of this on the stock exchange and we are progressing on this,” Ariyibi said.
He pointed out that the high returns on FBN Holdings’ stock and the facts of its history and operations as the leading bank make investment in the company like investment in a fixed-income instrument with equity upside, assuring that investors will always get good returns from the bank.
On the relative undervaluation of the company’s stock relative to other financial services companies, he explained that a section of the previous Pension Reform Act that prevented pension fund administrators (PFAs) from investing in new companies that have not made profit and declare dividend in at least three of the last five years was misinterpreted to include newly formed holding company such as FBN Holdings and dissuaded PFAs, which are the largest Nigerian institutional investors, from investing in the company’s stock.
The constrained liquidity orchestrated by this reduced the market dynamic of the stock and limit its uptrend.
He however noted that with the emergence of the new Pension Act 2014 and removal of the inhibiting section, FBN Holdings will be the toast of the PFAs once the National Pension Commission release its new guideline for pension investment, which is expected by the month-end or January 2015.
Ariyibi said the group’s First Bank has imbibed all the existing and upcoming regulatory changes and it’s better position to sustain compliance with regulatory benchmarks including the upcoming increase in capital adequacy ratio for systemically important international commercial banks to 16 per cent by April 2015, as against 15 per cent for other international commercial banks not deemed as systemically important banks.
According to him, as the banking sector transits from Basel 1 to Basel 11, First Bank is well positioned to meet the requirements and has no challenge whatsoever with capital adequacy ratio.
He also allayed fears of possible spike in non-performing loans as a result of loans to oil sector, which has been rattled by decline in crude price, noting that First Bank’s loans are well structured to mitigate against non-performance.
