FBN Holdings Plc, the parent company of First Bank Nigeria Limited, is planning to cut about 1000 jobs and focus less on providing loans to the oil industry in a bid to reverse the 2015 financial year’s 82% slump in profit.
The lender expects to boost its return on equity, a key measure of profitability, to between 11% and 14% in 2016 from last year’s “really bad” figure of 3%, according to the Chief Executive Officer of First Bank of Nigeria Limited, FBN’s main subsidiary, Mr. Adesola Adeduntan.
He said the company was also targeting a cost-to-income ratio of 55% in two years time from 59%, “ROE will be much better than last year,” Adeduntan said in a telephone interview last week.
“At a minimum, we should triple it. We do not shy away from taking difficult decisions. We used to have above 8,000 people. We’ll push it down, gradually to 7,000” he added.
Its net profit fell to N15bn ($76m) from N84bn in 2014, as impairments soared and the economy slowed amid a crash in the price of crude, the biggest source of Federal Government revenue and export earnings.
Growth decelerated to 2.8% in 2015, the lowest level since 1999, and may worsen to 2.3% this year, according to the International Monetary Fund.
First Bank’s non-performing loans ratio stood at 22% at the end of March, compared with 3.8% a year earlier. Reducing that figure is the “number one priority,” said Adeduntan.
He said the bank would do that by reducing the proportion of its lending to the oil and gas sector, currently at about 39% of total loans, and focusing more on blue-chip companies in other industries.
Adeduntan ruled out any equity raising this year, saying the bank’s capital adequacy ratio of 17.2% was enough of a buffer and above the Central Bank of Nigeria’s minimum requirement of 15%.
It would still be adequate if the floor is raised to 16% in July for Systemically Important Institutions, including First Bank.
“We continuously evaluate it and the position now is that there’s no need for external capital,” Adeduntan, 46, who became the CEO in January after joining First Bank as chief financial officer in mid-2014, said.
“We generate enough internal capital,” he said. FBN’s shares rose by 5.3% to N3.57 on Wednesday. They are, however, still down 30% this year, more than the Nigerian Stock Exchange All Share Index’s drop of 13%.
The bank’s valuation lags that of its main competitors such as Guaranty Trust Bank Plc and Zenith Bank Plc. Its stock trades at 0.22 times book value, or the theoretical price that shareholders will get if all assets are sold and liabilities paid off. That compares with 1.18 times for GTBank and 0.62 for Zenith.
“The market has over-corrected,” Adeduntan said, adding, “It’s priced in all the negative information. For us, it can only go up.”