First Bank of Nigeria reports over N5bn bad loans in H1 2016

First Bank of Nigeria Holdings Plc (FBN Holdings) has reported a N531.7 billion Non-Performing Loan (NPL) in half year (H1) ended June 30, 2016 against the N353.5 billion it recorded in 2015.

Naira devaluation and dwindling global oil prices increased the financial institution’s NPL ratio to 23 percent in H1 2016 from 22 percent in first quarter of this year.

The 23 percent in NPL ratio is above the Central Bank of Nigeria (CBN) threshold of five percent high marked for financial institutions operating in the country.

The group had reported NPL of N410.7 billion in first quarter of 2016 as First Bank of Nigeria Limited, a subsidiaries of FBN Holdings investment in Oil & gas sectors contributed heavily to the group’s overall bad loans in half year of 2016.

The lender contributed 91.1 percent or N484.7billion to the group’s NPL in the half year ended June 2016 as against N338.7billion reported in 2015 full financial year.

Data gathered revealed that bad loans evolution of First Bank of Nigeria opened the year at N396.6billion. The bank newly classified worth N88.9 billion bad loans while N0.8billion was de-classified as bad loans.

Breakdown of First Bank of Nigeria bad loans ratio by sector revealed that Oil & Gas downstream contributed 67.7 percent while Oil & Gas upstream and Oil & gas services added 39 percent and 23.8 percent to its bad loans in half year ended June 30, 2016 respectively.

First Bank of Nigeria’s NPL ratio increased to 26.04 percent as against 21.24 per cent in 2015, largely driven by translation effect of the Naira devaluation; intense remediation and recovery activities are ongoing for prompt declassification of the non-performing accounts.

The lender revealed that its bad loans in Oil & Gas sector stood at N359.9billion from N246.0billion reported in 2015 full year results.

Break downing the Bank’s bad loans in Oil & Gas sector revealed that Oil & Gas downstream added N178.7 billion; Oil & Gas upstream N150.4 billion and Oil & Gas services N30.7 billion.

Other loans that went bad contributed 38.7percent; Information 30.6 percent; General 17.8 percent; consumer 12.1 percent; construction 9.8 percent; manufacturing 5.6 percent; real estate 4.9 percent and government bad loans 3.5 per cent.

The group total loans and advances to customers rose by 16.2 percent y-t-d to N2.1 trillion from N1.8trillion as at December 31, 2015.

First Bank of Nigeria gross loans grew by 16.7 per cent; adjusting for devaluation the loan book declined y-t-d by 1.3 percent implying an 18.3 percent devaluation impact on the entire loan book.

In dollar terms, y-t-d, while foreign currency net loans portfolio in First Bank of Nigeria declined by about $200 million.

The Breakdown of the Oil & Gas portfolio in upstream, downstream and services as at H1 2016 is 20.7 percent, 14.2 percent and 6.9percent respectively.

With increased bad loans, the group announced 11 percent decline in profit after tax for the half year ended June 30, 2016.

The group announced that its profit moved from N40.1 billion in H1 2015 to N35.9 billion in H1 2016 while profit before tax also dip by 12 per cent to N45.9 billion as against N52.1 billion recorded in prior H1 of 2015.

For the half year unaudited results, gross earnings dropped by 1.2 per cent to N267.9 billion from N271.3billion in H1 2015.

FBN Holdings recorded an impairment charge for credit losses of N69.9 billion in H1 2016 as against N22.6 billion in H1 2015.

Commenting on the results, the Group Managing Director, UK Eke, said, “FBN Holdings’ performance has remained resilient in the challenging macroeconomic and business environment, further exacerbated by the devaluation of the Naira and by the persistent rise in inflation.

The Group returned gross earnings of N267.9 billion and profit before tax of N45.9 billion; a reflection of the strength of our underlying business, improving cost control as well as optimisation of revenue generating opportunities. Focus remains on organic earnings generation, divestment of non-core assets, in addition to balance sheet efficiency to further enhance capital.

He added that, “We remain focused on leveraging the strength of our diversified business model by exploiting synergy opportunities and cross-selling across our commercial banking, merchant banking & asset management as well as our insurance businesses towards creating sustainable value for our stakeholders.”

From the group financial position, total assets rose by 15.3 percent to N4.8 trillion from N4.2 trillion recorded as at December 31, 2015.

Customer deposits also increased by 4.2 percent from N2.97 billion to N3.1 trillion while customer loans and advances closed the half year at N2.1 trillion, up 16.2 per cent year-to-date as against N1.8 trillion recorded in full year ended December 31, 2015.

However, The CBN had granted a one-off forbearance to banks this year to write-off their fully provided for NPLs without waiting for the mandatory one year as stipulated by the Prudential Guidelines.

The CBN stated this in a two-paragraph circular by its Director, Banking Supervision, Mrs. Tokunbo Martins, a copy of which was posted on its website recently.

She stated that the CBN acknowledged the request by banks to amend the requirements of S.3.21 (a) of the Prudential Guidelines, which mandates banks to retain in their records, fully provided NPLs for a period of one year before they are written off.

“The CBN has no intention of repealing the provision of the above mentioned section of the guidelines. In view of the current macro-economic challenges, however, the CBN hereby grant a one-off forbearance this year 2016 to banks, to write-off fully provided for NPLs without waiting for the mandatory one year,” she wrote in the circular addressed to all banks.

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Banking sector NPLs have been predicted to jump to 12.5 percent of the total loans of the banks this year, up from the central bank’s target level of five per cent at the end of last year, according to Agusto & Co, Nigeria’s main rating agency.