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Breaking: First Bank loses N13.2 billion to bad loans in Q1

Non-Performing Loans (NPLs) were major drags on the performance of First Bank of Nigeria (FBN) in the first quarter of this year.

The bank’s provisions for ‘bad loans’ impairments increased by 35.7 per cent to N13.2 billion within the three-month period.

The impairment charges technically imply losses which usually have top-down negative effect on the organisation’s profit.

The provisions for ‘bad loans’ in the first quarter depressed the group’s net bottom-line by 39.3 per cent or N10.1 billion.

These were part of the highlights of the latest operational reports of FBN Holdings Plc, the holding company for First Bank of Nigeria and its former subsidiaries.

The release of the scheduled three-month report for the quarter ended March 31, 2021, came at the time the Central Bank of Nigeria (CBN) cited bad loans as a major challenge facing the first generation bank.

Analysts’ report on the first quarter results of FBN Holdings showed that impairment charges increase  depressed the group’s core banking net interest income by 21.6 per cent to N39.6 billion in first quarter 2021 as against N50.5 billion recorded in comparable period of 2020.

The report showed double-digit declines across key performance indicators. These were attributed to drag-on effects of non-performing loans, among others.

Analysts’ report by FSDH Group, a leading investment banking group, noted that the “company continues to lose the market share as it has been focusing on resolving a spike in NPLs over the past few years”.

FBN’s NPLs are still about 2.9 percentage points above the industry threshold of 5.0 per cent of gross loans and advances. The NPLs/Gross loans ratio however dropped from 9.2 per cent in first quarter 2020 to 7.9 per cent in first quarter 2021. The bank increased its provisions for non-performing loans with a NPL coverage of 54.5 per cent in first quarter 2021 compared with 46.4 per cent in corresponding period of 2020. Impairment charges rose from N9.71 billion in first quarter 2020 to N13.18 billion in first quarter 2021.

Gross earnings dropped from N159.68 billion in first quarter 2020 to N136.58 billion in first quarter 2021. Profit before tax declined from N28.68 billion to N18.91 billion. After taxes, net profit dropped from N25.70 billion in first quarter 2020 to N15.6 billion in first quarter 2021.

“It is worth noting that the weak results in this quarter are on the back of lacklustre results in financial year 2020,” FSDH stated.

The bank’s interest income fell by 25.3 per cent from N104.9 billion in first quarter 2020 to N78.4 billion in first quarter 2021. This fall in interest income was offset by more than a proportionate decline in interest expense that fell 42.7 per cent to N25.6 billion in first quarter 2021. The impairment charges further increased by 35.7 per cent to N13.2 billion in first quarter 2021. As a result, the net interest income after Impairment sank 21.6 per cent to N39.6 billion from N50.5 billion in first quarter 2020.

The review showed that net fee and commission income jumped 36.8 per cent to N28.4 billion, driven by a 31.8 per cent spurt in fee and commission income, supported by a less than proportionate 11.2 per cent rise in fee and commission expense. The fee and commission income increased mainly on the back of growth in credit-related fees, letters of credit commissions and fees and electronic banking fees.

The bank’s foreign exchange income inched 1.8 per cent higher to N2.7 billion. The gains on the sale of investment securities also continued to perform well as it climbed 32.3 per cent to N17.9 billion in first quarter 2021. However, the gains from the fair value of financial assets reported at fair value through profit or loss (FVTPL) continued to drag with a 62.6 per cent fall to N3.1 billion. Dividend income tumbled 99.4 per cent to a mere N26 million in first quarter 2021, from N4.0 billion in first quarter 2020.

The bank’s personnel cost increased 3.5 per cent to N24.8 billion in first quarter 2021, and the depreciation charges bumped up 13.7 per cent. However, the company managed to keep the operating expenses in check with a mere 0.2 per cent rise to N42.0 billion.

With these, operating profit fell by 34.1 per cent to N18.9 billion in first quarter 2021. The bank’s earnings per share dropped by 36.8 per cent from 68 kobo in first quarter 2020 to 43 kobo in first quarter 2021.

In segmental breakdown, commercial banking and business group’s revenue fell by 15.2 per cent as it faced varying degrees of challenges in the operating environment. Merchant banking and asset management business group declined marginally by 1.5 per cent while other revenue fell by 16.2 per cent.

Central Bank of Nigeria (CBN) Governor Godwin Emefiele had last week cited bad loans, especially insider loans, as major challenges facing Nigeria’s oldest bank.