FBN Holdings, Others suffer drop in profit, dividend in 2015 FY

By Chioma Obinagwam

First Bank of Nigeria(FBN) Holdings Plc and three other listed banks on the Nigerian Stock Exchange (NSE) are expected to report decline in profit for the financial year(FY)ended December 2015 following dwindling global oil prices and macro-economic headwinds.

Reassessment of loan portfolio in the oil & gas sector has forced banks to increase impairment charges and it is expected to downsize profit and dividend payment for the financial year ended 2015.

Since  the major banking reform embarked upon by the Central Bank of Nigeria (CBN) in 2009/2010 in the banking industry, which led to improved risk management strategies by banks, it is expected that impairment charges impacted negatively on banks profitability.

However, the operating environment continues to throw-up challenges that have made banks to raise their level of provisioning for bad loans.

Specifically, FBN Holdings recently warned investors of decline in profit for the year under review as a result of impairment charges on some specific accounts resulting from a reassessment of the loan portfolio within its commercial banking business.

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A statement by the Holding company noted that the reassessment was driven by the challenging macro environment, coupled with fiscal and monetary headwinds which have resulted in market reduction in domestic output.

The company’s secretary, Tijjani Borodo added that, “This is a prudent measure being taken while the Bank has commenced active remedical action in the specific impaired accounts, “it explained.

Investigations by National Daily revealed that FBN Holdings unaudited financial statement for the nine-month ended September 30, 2015 provided N46.6 billion impairment charge for credit losses from N13.36 billion for the period ended September 30, 2014, representing 249 per cent growth.

With hike in operating expenses, the Group recorded a decline of 10 per cent in profit to N50 billion as against N55.6 billion in prior nine-month of 2014.

Other banks that are expected to report significant growth in impairment charges and decline in profit include   Diamond Bank Plc, Stanbic IBTC. Holdings Plc and First City Monument Bank Plc (FCMB).

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Diamond Bank, for instance, reported a charge of N19.4 billion in nine-month ended September 2015 from N14.6billion reported in prior nine-month of 2014 while Stanbic IBTC was leading with 521 per cent rise in loan impairment figures at N12.5 billion as against N2.0 billion in the corresponding nine-month period of 2014.

FCMB had also reported 291 per cent increase in impairment charges from N3.9 billion to N15.3 billion in the period under review.

Head, Investor Relations, FCMB group, Mr. Orighoye Rewane in a statement to Nigerian NewsDirect noted that two major provisions that include N5.4 billion and N6.2 billion were made available in the third quarter of 2015.

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Rewane  in his statement said, “two major provisions were made in 3Q’ 15, namely: N5.4 billion receivable amount from a gilt edged government agency; and a loan customer that is in court with the bank (the amount is N6.2billion) which increased the total provisions during the year to N15.2billion.”

He expressed optimism that significant portion of these provisions would be recovered this year.

Reacting to the numerous challenges facing the banking sector in the country, Afrinvest Group, an investment company situated in Nigeria stated, “despite acclaimed foreign exchange hedging by the banks in terms of lending to the oil and gas space which are mostly dollar denominated, we expect banks’ cost of risk (cost of loans, including losses) to increase in 2015. The lag effect of the sharp decline in global oil prices which started late 2014 may weigh down on oil companies’ profit margins, hence effect loan repayment.”

“Additionally, the delayed payment of subsidy (above normal 45-day payment cycle) by the federal government may also contribute to the challenges to credit in this space. Against this backdrop, we expect collectively and individually assessed impairment charges,” it continued.