Business
FBN Holdings Plc – Remediating the past, reinvigorated to unlock value
Following our meeting with the Chief Executive Officer of First Bank Nigeria & Subsidiaries and consequently a detailed understanding of the bank’s medium term strategy, we have revised our medium term earnings projections upwards and our target price for FBN Holdings Plc (listed vehicle that owns Firstbank) to N7.34.
This presents an upside of 90.6% to the current price of N3.85. Hence, we upgrade the stock to a BUY rating. Please find below key insights from our meeting with management.
A strong commitment to performance – driven by a new breed of management
First Bank of Nigeria Limited recently filled the position of its Chief Risk Officer (CRO)
– after about six months long meritocratic process. The new CRO – Mr. Segun Alebiosu – a seasoned risk officer with significant exposure to qualitative risk management processes at African Development Bank, resumed just weeks after a new CFO – Mr. Patrick Iyamabo – former group CFO at FCMB joined the bank. The duo of Executive Director Corporate Banking (Dr Remi Oni) and Chief Information Officer, Mr Callistus Obetta has earlier been recruited from Standard Chartered Bank.
The Bank also appointed a Deputy Managing Director for the first time in its history. The new hires completes a new crop of executive management team led by Dr. Sola Adeduntan (FCA), most of whom have had first-rate experience in some of the best institutions in Nigeria and on the African continent.
A new First Bank – a different philosophy to doing business
We summarise this new philosophy in two words – quality and efficiency. The focus is on repositioning the bank’s risk process and improving efficiency to derive optimum value. Management has introduced additional approval/governance processes to credit origination and considerably tempered its risk appetite and tolerance limits. Emphasis is on quality at entry and portfolio diversification.
Deploying technology to drive transparency
First Bank is rolling out its First Shared Services (FSS) initiative to centralise back office operations for its in-country branches. When completed, would significantly improve transaction transparency, customer experience and operational efficiency.
Also, the bank is currently deploying the Oracle Enterprise Resource Planning (ERP) solution, to fully integrate its middle and back office functions. The reason is to rein
in cost by ensuring a centralized oversight on ‘thorny’ back-office functions such as
procurement, which is now directly under the CFO.
Pace of clean up slowing down, but some more to go
Between January 2016 and end of March 2017, FBNH has reported credit impairment charges of about N255 billion. By FY 2017, we estimate about N120billion in impairments charges. We believe this trend will slow by 2018 though NPLs will likely still be in the double digits (we project 13% from 26% currently).
Renewed faith in current management – we upgrade to BUY
With the pace of clean up in the last 5 quarters, we believe in the commitment of First Bank’s Board and management to reposition the bank’s balance sheet. We are
also convinced of the bank’s medium term strategy to deliver quality earnings and therefore upgrade FBNH stock to BUY.
Asset Quality Update: End in sight for asset quality problems
Total provisions for bad loans by FBNH since January, 2016 when the new management took over are about N255 billion. The aggressive provisioning has been a deliberate and expedient decision to clean the bank’s balance sheet and reposition the institution.
Non-performing loan (NPL) ratio over the past three years has trended from 2.9% in FY’14 to 24.4% in FY’16, with N418.5 billion worth of loans classified during this period.
The upstream and downstream oil & gas sector currently accounts for 29.6% and 34.7% of total NPLs respectively. Together, the upstream and downstream petroleum sector represent about 65% of nonperforming loans.
Atlantic Energy, the last man standing – Atlantic Energy loan (N145.6 billion) is the only non-performing loan in the upstream oil & gas portfolio. Management is optimistic that the resolution path is clear and will be resolved given its economic relevance (Atlantic Energy has 8 oil fields). It however acknowledged that government bureaucracies have slowed down the remediation process but expects the transaction to gain traction in the coming quarters. We believe Atlantic Energy loan will be remedied as management has indicated.
Pending the resolution, the bank may have to take additional impairments, which the bank has the headroom to absorb in our view. Given the prolific production capacity of the asset, we align with management on the recoverability. Considering the earnings capacity of the bank (as it absorbed over N240 billion in impairments without reporting a loss in FY’16), we highlight that FBNH has the capacity to provide for this asset if this becomes necessary.
Downstream asset quality to improve in Q3’17 – On the downstream portfolio, FBNH has made good progress on the remediation of its two biggest delinquent assets in the sub-sector. On the first asset, management has restructured the credit facility and has received the cash flow required to make interest repayment over the next two quarters. Hence, First Bank expects to reclassify the assets as a performing loan in Q3’17.
The reason for the lag in reclassification is to fulfill IFRS requirement, which requires that an asset must be performing for 6 months (2 quarters) before it can be reclassified. On the second downstream asset, management is in the final
stage of disposing off the collateral and expects the sale of the asset to yield material write back. . Management expects the resolution of these two big NPLs to moderate
its total NPLs by about 600bps this year while the write backs from the asset will also improve profitability.
First bank fortifies risk governance and management process
Risk governance – First Bank has strengthened its risk governance culture and changed its philosophy around credit origination and risk management. Beyond the
recent recruitments in Risk Management and Corporate Banking, First Bank has deliberately lowered its risk appetite in credit origination. The bank has also instituted a different risk governance structure by reducing approval limits across board and setting prudent limits across obligor, industry and also, the bank has changed its approach to credit origination under the new management.
The corporate banking team has been strengthened to entrench best practice in credit origination as the bank is now focusing on risk management from origination. This was the crucial reason for the recruitment of the Executive Director (ED) in charge of Corporate l Banking – Remi Oni, former ED for Institutional and Corporate Banking for Standard Chartered Nigeria and West Africa .
Risk management process – In addition to the existing centralized risk management process, FirstBank is currently deploying the Oracle Enterprise Risk Management (ERM) system. This is expected to further centralize risk management and enable management examine the interactions of risk exposures among the different entities of the bank. We consider this is a step in the right direction as the majority of the bank’s delinquent loans was a concentrated pool of obligors – just 5 obligors are responsible for about 70% of NPLs.
Furthermore, management also moved to improve risk management in its international subsidiaries through stronger oversight and strengthened governance. We believe the extra level of due diligence and the expected improved credit quality will strengthen the balance sheet of the bank First Bank also appointed a Group Executive, Mrs. Bashirat Odunewu, to supervise the subsidiaries to ensure compliance and appropriate governance. The key takeaway from our interaction with management, is that we noted significant improvement in the overall risk and control culture of the Bank and are convinced of the sustainability of the culture under the current management.
Management all out to boost efficiency
First bank’s cost-to-income ratio has improved substantially over the last two years, trending downwards from a high of 61.4% in FY’15 to 47.0% and 53.3% in FY’16 and Q1’17 respectively despite the strong inflationary pressures experienced in 2016.
The significant improvement in cost efficiency is partly enabled by the ongoing implementation of its First Shared Service (FSS). The FSS which is a giant data processing centre, is increasingly processing customers’ transactions across all First bank branches. The implementation of the FSS is eradicating the duplicity of roles across branches, standardizing customer service experience and also lowering the chances of fraudulent transactions. Management on the back of this implementation has seen the front office/ back office staff mix improve to 30%/70% in FY’16 from 20%/80% in FY’15.
This is expected to further improve to a mix of 50%/50% in the near term. Management is also currently working on integrating other subsidiaries (banking subsidiaries outside Nigeria) into the data processing centre. Like every other initiative of the new management, First bank recruited an IT and operations expert, Mr. Callistus Obetta, former group head of technology and operations at Standard Chartered Bank, West Africa, to lead and drive the FSS implementation.
Finally on cost control the Oracle software earlier mentioned, when fully implemented, will centralize procurement thereby assisting management keep a close lid on operating expense. This will improve cost budgeting and monitoring across various units.
Leveraging technology to consolidate back-end operations and drive transactional banking
First Bank intends to be a more transaction focused bank and hopes to leverage its digital banking platform to drive transaction revenue. The digital and electronic platform now currently accounts for about 47% of total banking transactions and management expects to ramp this up to 70% by December 2019. In September 2016, management enhanced the bank’s USSD (Unstructured Supplementary Service Data) banking platform and since then the bank has grown to become the bank with the second highest USSD transaction volume (about 200,000 transactions lower than the current market leader).
With this current rate of growth, management expects to be market leader by June 2017. First Bank has also been appointed as lead bank by 8 state governments planning to aggressively drive internally generated revenue (IGR) as the primary transactional bank. Management expects this development to further boost non-interest revenue going forward.
Strategic outlook
We believe in First Bank’s organic capacity to generate value from its assets. Over the next two years, we’ll likely start seeing impairment charges slow down. In addition,
the significant cut down in operating expenses (by eliminating certain roles) and improvement in the procurement process will unlock earnings growth. When this is placed in perspective with the bank’s strong franchise and reach in Nigeria, access to a huge retail pool, deliberate push in digital banking and stronger credit risk management process, we see significant value accretion from the bank’s current position in the medium term.
As seen below, the pre-impairment return on equity of FBNH is the second highest amongst tier 1 banks – which validates the strength of the bank to generate revenues. With a correction of its prior years’ anomaly of very high opex and poor risk management practice, we are convinced gross earnings will begin to filter down to strong earnings and shareholder value.
Also, on a relative valuation basis, FBNH is significantly undervalued with P/B of 0.2x compared to peers and Middle East and African banks average of 0.6X and 1.08%respectively.
While the huge discount on FBNH’s valuation may seem justified on the surface given currently high impairment charges and non-performing loan ratio, we believe the bank’ balance sheet is substantially cleaner than it was a year ago and thus a re-pricing of the stock is nearer than farther.
For strategic and value motivated investors, we believe this may be a good time to start buying FBNH as we envisage a significant re-pricing from current levels as impairment begin to normalize in the short to medium term.
Short term outlook
We expect interest income to rise by 12.7% to N456.6 billion in FY’17, driven by our expectations that yields on government securities will remain elevated during thecourse of the year. We see non-interest income declining by just 25.5% to N123.3 billion in FY’17, after adjusting for the impact of FX revaluation gains (N80.0 billion)and our estimate of the expected impairments write back (N20.0 billion) in Q2’17.
Overall, we expect gross earnings to contract slightly by 0.3% to N579.9 billion (after normalizing the impact of last year’s FX revaluation gains). If we normalize last year’s earnings, we actually expect 16% growth in gross earnings. We expect impairments charges to decline by 43.4% to N128.0 billion as management gradually wraps up its house cleaning in FY’17.
Given the traction seen in cost control measures, we expect operating expenses to inch up slightly by 4.9% to N231.7 billion, with a cost to income ratio of 52.0%. Finally, we expect after tax profit to surge by 332.2% to N74.1 billion, as impairments on bad loans moderate by about N100.0 billion.
Valuation
After incorporating our expectations of a significant decline in loan loss provisions as well as the higher earnings capacity of FBNH, we have revised our target price
upwards to N7.34. This presents an upside of 90.6% to the current price of N3.85. At current price, FBNH is trading at a P/B of 0.2X which is at a discount to peer average of Middle East and Africa banks average of 0.6X and 1.08X respectively.
Performance Review – FY’16 and Q1’17
Strong earnings growth in FY’16, continues in Q1’17– Gross earnings increased by 15.7% YoY to N581.8 billion in FY’16, driven by 69% YoY growth in non-interest income to N165.5 billion. The marked growth in non-interest income was spurred by foreign exchange revaluation gains (N89.1 billion) as well as higher income from fees & commission (+11.7% YoY). In Q1’17, gross earnings increased by 31.2% YoY to N141.0 billion but declined by 14.0% QoQ from N164.5 billion in Q4’16.
Further rise in impairments in FY’16, moderates in Q1’17 – Impairment charges were elevated, rising by 90.3%YoY to N226.0 billion in FY’16. Impairments also trended higher in Q1’17, rising by 126.0% YoY to N28.8 billion, (driven by provision taken in the bank’s UK subsidiary) but moderated on a QoQ basis declining by 74.5%.
After tax earnings grew marginally by 10.3% YoY to N17.1 billion in FY’16 despite the loss after tax reported of N25.5 billion reported by the group in Q4’16 following the aggressive impairment provisioning. Given the low base of impairment charges in Q1’17 earnings after tax declined by 22.3% YoY to N16.1 billion but was significantly better than the loss after tax made in Q4’16.
Strong capital position despite high NPL ratio – Non-performing loan ratio deteriorated to 24.4% and 26.0% in FY’16 and Q1’17 respectively from 18.1% in FY’15. Coverage ratio however improved to 57.3% and 58.8% in FY’16 and Q1’17 respectively from 40.2% in FY’15. About 71% of FBNH’s total NPL is concentrated in the oil & gas sector (34.7% in downstream, 29.6% in upstream and 7.1% in services).
Despite the high impairment and NPL ratio, capital adequacy ratio for the bank is well above regulatory limits, rising to 18.1% in Q1’17 from 17.8% in FY’16. The increase in CAR was driven by a significant decline of 1.5% in risk weighted assets.
Deadline of Compliance: Nigeria’s Urgent Call for Tax Return Filing
By George Omagbemi Sylvester | Published by SaharaWeeklyNG.com
“Shift or Structural Demand? A Declaration of Civic Duty in a Nation at a Fiscal Crossroads.”
In the unfolding narrative of national development and economic reform, few instruments are as defining as tax compliance. For Nigeria, a nation perpetually grappling with revenue shortfalls, structural dependency on a single export commodity, and entrenched informal economic behaviour, the Federal Government’s recent clarification on tax return deadlines is not mere bureaucratic noise. It is a deliberate and inescapable declaration: the social contract between citizen and state must be honoured through transparent, lawful and timely tax reporting.
At its core, the government’s pronouncement is stark in its simplicity and radical in its implications. Federal authorities, speaking through the Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, Taiwo Oyedele, have made it unequivocally clear that every Nigerian, whether employer or individual taxpayer, must file annual tax returns under the law. This encompasses self-assessment filings by individuals that too many assumed ended once employers deducted pay-as-you-earn taxes from their salaries.
This is not an optional civic suggestion, it is mandatory, backed by statute, and tied to a broader vision of national fiscal responsibility. Citizens can no longer hide behind ignorance, apathy, or false assumptions. “Many people assume that if their employer deducts tax from their salaries, their obligations end there. That is wrong,” Oyedele warned, emphasizing that the obligation to file remains with the individual under both existing and newly reformed tax laws.
The Deadlines and the Reality They Reveal.
Across the federation, state and federal revenue authorities have reaffirmed statutory deadlines in pursuit of compliance. The Lagos State Internal Revenue Service, for instance, moved to extend its filing date for employer returns by a narrow window, reflecting the reality that compliance often lags behind legal timelines. The extension was intended not as leniency, but as a pragmatic effort to allow accurate and complete submissions, underscoring that true compliance rises above mere mechanical ticking of a box.
At the federal level, Oyedele’s intervention was even more fundamental. He reminded Nigerians that annual tax returns for the preceding year must be filed in good faith, with integrity and in respect of the law. This applies regardless of income level including low-income earners who have historically believed that they are outside the tax net. “All of us must file our returns, including those earning low income,” he stated.
Herein lies one of the most challenging truths of contemporary Nigerian governance: widespread tax non-compliance is not just a technical breach of law, it is a deep cultural and structural issue that reflects decades of mistrust between citizens and the state.
The Root of the Problem: Non-Compliance as a Symptom.
Nigeria’s tax culture has long been under scrutiny. Public discourse and economic analysis consistently show that a significant majority of eligible taxpayers do not file annual returns. Oyedele highlighted that even in states widely regarded as tax administration leaders, compliance remains strikingly low, often below five percent.
This widespread non-compliance stems from multiple sources:
A long history of weak tax administration systems, where enforcement was inconsistent and penalties were rarely applied.
A perception that public services do not reflect the taxes collected, eroding the citizenry’s belief in reciprocity.
An informal economy where income often goes unrecorded, making filing seem irrelevant or impossible to many.
Lack of awareness, with many Nigerians genuinely believing that tax liability ends with employer deductions.
The government’s renewed push for compliance directly challenges these perceptions. It signals a shift from voluntary or lax compliance to structured accountability, a stance that aligns with best practices in modern public finance.
Why This Matters: Beyond Deadlines.
At its most profound level, the insistence on tax return filings is about nation-building and shared responsibility.
Scholars of public finance universally agree that a robust tax system is the backbone of sustainable development. As the eminent economist Dr. Joseph E. Stiglitz has observed, “A society that cannot mobilize its own resources through fair taxation undermines both its government’s legitimacy and its capacity to provide for its people.” Filing tax returns is not a mere administrative task, it is a declaration of participation in the collective project of national advancement.
In Nigeria’s context, this declaration carries weight. With the enactment of comprehensive tax reforms in recent years (including unified frameworks for tax administration and enforcement) authorities now possess broader statutory tools to ensure compliance and accountability. These measures, which include electronic filing platforms and stronger enforcement powers, have been framed as fair and equitable, targeting efficiency rather than arbitrariness.
Yet the success of these reforms depends heavily on citizens embracing their civic duties with sincerity. And this depends on mutual trust, the belief that paying taxes yields tangible benefits in infrastructure, education, healthcare, security and social services.
Voices From Experts: Fiscal Responsibility as a Public Ethic.
Tax law experts and economists, reflecting on the compliance push, have underscored a universal theme: taxation without transparency is inequity, but taxation with accountability is empowerment. When managed with fairness, a functional tax system can reduce dependency on volatile revenue sources, stabilise national budgets, and support long-term investment in human capital.
Professor Aisha Bello, a respected authority in fiscal policy, notes that “Tax compliance is not a burden; it is the foundation upon which social contracts are built. A citizen who honours tax obligations affirms the legitimacy of governance and demands better performance in return.”
Similarly, a leading tax scholar, Dr. Emeka Okon, argues that “The era when Nigerians could evade broader tax responsibilities simply because automatic deductions occur at source must end. For a modern economy, every eligible citizen must be part of the formal tax fold not as victims, but as stakeholders.”
These authoritative voices point to an unassailable truth: filing tax returns is both a legal requirement and a moral responsibility, an expression of citizenship in its fullest sense.
Challenges on the Ground: Compliance and Capacity.
While the rhetoric of compliance is compelling, the reality on the ground demands nuanced understanding. Many taxpayers (especially in the informal sector) lack meaningful access to digital platforms and resources for filing returns. For others, the fear of bureaucratic complexity and perceived punitive enforcement deters participation.
The government, for its part, has responded by promoting online systems and pledging greater taxpayer support. Tax authorities are increasingly engaging stakeholders to demystify filing processes, explain requirements and offer assistance. This mix of enforcement and facilitation is essential. As one seasoned revenue specialist observed: “The state cannot compel compliance through force alone; it must earn it through education, simplicity and fairness.”
The Broader Implication: A New Social Compact.
Ultimately, Nigeria’s renewed emphasis on tax return filing transcends administrative deadlines. It is an unequivocal declaration that national development is a shared responsibility, that citizens and state must engage in a transparent, accountable, and reciprocal relationship.
Tax compliance, therefore, becomes far more than a legal act; it becomes a moral claim on the nation’s future.
When citizens file their returns honestly, they affirm their stake in the nation’s destiny. When the government collects taxes transparently and deploys them effectively, it strengthens not only public services but civic trust itself.
In this sense, the deadlines proclaimed by Nigeria’s fiscal authorities mark not an end but a beginning; the beginning of a civic epoch in which accountability replaces apathy, participation replaces indifference and national purpose triumphs over fragmentation.
The road ahead will not be easy. But in demanding compliance, Nigeria is demanding more than tax returns. It is demanding commitment and that, ultimately, is the foundation on which nations are built.
BUA Foods Records 91% Surge in Profit After Tax, Hits ₦508bn in 2025
By femi Oyewale
Business
Adron Homes Unveils “Love for Love” Valentine Promo with Exciting Discounts, Luxury Gifts, and Travel Rewards
Adron Homes Unveils “Love for Love” Valentine Promo with Exciting Discounts, Luxury Gifts, and Travel Rewards
In celebration of the season of love, Adron Homes and Properties has announced the launch of its special Valentine campaign, “Love for Love” Promo, a customer-centric initiative designed to reward Nigerians who choose to express love through smart, lasting real estate investments.
The Love for Love Promo offers clients attractive discounts, flexible payment options, and an array of exclusive gift items, reinforcing Adron Homes’ commitment to making property ownership both rewarding and accessible. The campaign runs throughout the Valentine season and applies to the company’s wide portfolio of estates and housing projects strategically located across Nigeria.
Speaking on the promo, the company’s Managing Director, Mrs Adenike Ajobo, stated that the initiative is aimed at encouraging individuals and families to move beyond conventional Valentine gifts by investing in assets that secure their future. According to the company, love is best demonstrated through stability, legacy, and long-term value—principles that real estate ownership represents.
Under the promo structure, clients who make a payment of ₦100,000 receive cake, chocolates, and a bottle of wine, while those who pay ₦200,000 are rewarded with a Love Hamper. Payments of ₦500,000 attract a Love Hamper plus cake, and clients who pay ₦1,000,000 enjoy a choice of a Samsung phone or a Love Hamper with cake.
The rewards become increasingly premium as commitment grows. Clients who pay ₦5,000,000 receive either an iPad or an all-expenses-paid romantic getaway for a couple at one of Nigeria’s finest hotels, which includes two nights’ accommodation, special treats, and a Love Hamper. A payment of ₦10,000,000 comes with a choice of a Samsung Z Fold 7, three nights at a top-tier resort in Nigeria, or a full solar power installation.
For high-value investors, the Love for Love Promo delivers exceptional lifestyle experiences. Clients who pay ₦30,000,000 on land are rewarded with a three-night couple’s trip to Doha, Qatar, or South Africa, while purchasers of any Adron Homes house valued at ₦50,000,000 receive a double-door refrigerator.
The promo covers Adron Homes’ estates located in Lagos, Shimawa, Sagamu, Atan–Ota, Papalanto, Abeokuta, Ibadan, Osun, Ekiti, Abuja, Nasarawa, and Niger States, offering clients the opportunity to invest in fast-growing, strategically positioned communities nationwide.
Adron Homes reiterated that beyond the incentives, the campaign underscores the company’s strong reputation for secure land titles, affordable pricing, strategic locations, and a proven legacy in real estate development.
As Valentine’s Day approaches, Adron Homes encourages Nigerians at home and in the diaspora to take advantage of the Love for Love Promo to enjoy exceptional value, exclusive rewards, and the opportunity to build a future rooted in love, security, and prosperity.
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