In analyzing the management and financial performance of a Nigerian company- First Bank of Nigeria Plc, in the last three years covering year 2008 to 2010, this analysis intend to give a brief overview of the Nigerian economy during the period and with a focus on the banking sector generally but zeroed – in on the First Bank of Nigeria Plc performance during the period under review. 2.THE NIGERIAN ECONOMY 1.
HISTORICAL ANTECEDENTS The Nigerian economic structure is largely based on oil. This is in spite of the country’s great potentials in agriculture and solid minerals which were largely neglected and unexploited. Ironically the pre- and post- independence era of the country, Nigerian economy was robustly agricultural based and dependent until the discovery of the black – gold – oil, which seems to be the bane of development.
Similarly, the Nigerian economy has stumbled for years due to political unrest, corruption and poor fiscal policies.However, since the restoration of the democracy and introduction of some economic reforms, the country is returning to growth at a fast pace. The Nigerian economy is reported by the International Monetary Fund (IMF) as one of the most developed economies in Africa, projected as the second fastest growing economy in the world, with tremendous potentials to outperform other African economies in the near future. In the same vein, by the United Nations (UN) classification, Nigeria is a middle income nation with developed financial, communication and transport sectors.All these with its prime position as the second largest stock exchange market, the Nigerian is rated as one of the most developed economies in Africa. 2. THE STRUCTURE Coincidentally, owing to the surge in the international oil prices, Nigeria managed an annual GDP of US $ 352.
3 billion and 33rd in the world. The GDP structure was constituted by 33. 4 for agriculture, 34. 1 on industry and services 32. 5 resulting in US $ 2, 400 per capita. TABLE 1: STATISTICAL SNAPSHOT ON NIGERIAN ECONOMY |(i) |Labour Force |47. 3million | |(ii) |Labour in Agriculture |70 % | |(iii) |Budget Revenue |$ 10.
49 billion | |(iv) |Budget Expenditure |$ 18. 08 billion (2009 estimate) | |(v) |Industrial production growth rate |1. % (estimate) | |(vi) |Current Account balance |$ 9. 394 billion (estimate) | |(vii) |Exports |$ 45. 53 billion (estimate) | |(viii) |Foreign Exchange Reserves |$ 46. 54 billion (December 2009 estimate) | |(ix) |External Debt |$ 9. 89 billion (December 2009 estimate) | Source: CIA – World Fact Book; CBN Briefs 2006 -2007 edition 3.
THE BANE/CHALLENGES OF THE ECONOMY Nigeria is the 12th largest producer of petroleum products in the world and on which its economic profile is central. The industry accounts for over 80 % of the GDP and 90 % of total exports. Unfortunately, the Nigerian economy lacks basic infrastructure and therefore makes it amorphous and vulnerable to the slightest shock in the international oil maket. Several efforts made since the 1990s to develop other industrial sectors have not yielded the much expected results.The challenges of the Nigerian economy is largely informed by leadership problem and lack of political will to effectively fix the industrial resources. This is with a view to stemming the wide spread poverty with its attendant problems of violence, corruption, criminality and the likes. In spite of the concerted efforts by government since 2003 – 2007, to initiate strategic economic reforms to eradicate poverty and bring economic succor and equality to the citizenry, pervasive corruption has been the main impediment to the success of the efforts.
Consequently, the country ranks 151 out of 177 of the UN development index rating. . THE SCENARIO Against the foregoing scenario, the Gross Domestic Product (GDP) was surprisingly estimated to have grown by about 8. 0 % in 2009 against 6. 6 % recorded in 2008. The growth in non – oil sector particularly in agriculture was a robust estimation at 9. 0 %.
Correspondingly, the contribution of oil to the GDP shrunk by 2. 5 % as a result of the softness of the oil market which resulted from the rapid and precipitous tumbling price of oil and the unrest in the Niger Delta region which had under mind the country’s crude oil production.The aftermath of this development up thrust inflation to 14. 7 % by the end of 2008 due to rising global costs of food and energy which affected most economies. Food inflation stood at 19. 2% while core inflation for all items save farm produce and other commodities stagnated at a reassuring 7. 9 %.
The drive to manage effectively the inflationary pressure built on the continuing coordination between fiscal and monetary policies and the overall pursuit of prudence in managing the economy was sustained. The irony of the performance of the economy in the years under review (2008 to date) as the irony of growth in the context of shrinking employment opportunities precipitating a demographic nightmare. All this have a spiral debilitating effect on the critical sectors of the economy during the period with the developments in the banking industry, which is to all intents and purposes is the engine of growth that lubricates the wheel that propels the growth and sustenance of the national economy. 3. THE NIGERIAN BANKING INDUSTRY 1. THE IMPACT OF GLOBAL FINANCIAL CRISES The world financial crises started from the U. S.
A. around 2008.The effect reverberates to most economies of the world thus grappling with the strategies to conceptualize ways to ameliorate the devastating effects of the crises. The immediate effect and reflection of the global financial crises was that prices of oil fell precipitously from $150 per barrel by mid 2008 to as low as $40 2009. Coincidentally, it was about the same time the Nigerian Government embarked on bank consolidation programme with a concept based on increased capital base for all banks operating in Nigeria. This led to the reduction of the number of banks in the country within a space of eighteen (18) months from 89 to 24 banks.The programme resulted in merger, acquisition, consolidation among banks and outright cancellation of banking licenses of many.
This programme is similar to the indigenization programme of 1972/1977 which grouped businesses and reserved percentage share holding for Nigerian citizens. While foreign owned and managed banks that could not come to terms with the new stipulation closed down and left the country. The consolidation programme in the banking industry no doubt engenders a land mark development in Nigeria. 2. THE NIGERIAN BANKING INDUSTRYThe Nigerian Banking Industry is blessed with three codes of corporate Governance – Code of Best Practice on Corporate Governance in Nigeria by the Nigerian Securities and Exchange Commission; Code of Corporate Governance for Banks and other Financial Institutions by the Bankers Committee (2003); and the Code of Corporate Governance for Banks in Nigeria Post Consolidation (2006). There are also codes of Ethics and Professionalism in the Industry. These codes aim at ensuring proper and effective governance of banks ethically and professionally.
The Banking Industry consolidation programme was believed by the Nigerian Government as the perfect panacea and imunity that can insulate the Nigerian economy against the global financial crises and hence, the Nigerian financial system was perceived to be threat – free from the ravaging global financial crises. However, and shortly thereafter in 2008, with the slump of oil price to US $ 40 per barrel, the Nigerian economy becomes threatened – the budget projections becomes fizzling, fiscal allocations to the various tiers of the federation was unserviceable.There were also sudden and massive divestment from the Nigerian stock market as the financial crises worsened. Internationally and lending was being recalled to address problems relating to gaping holes in the respective balance sheets of financial Institutions. The banks in Nigeria were found holding the wrong end of the stick as margin lending became sticky therefore resulting in wide spread default that threatened the existence of some financial Institutions. 4. FIRST BANK OF NIGERIA PLC (ESTABLISHED IN 1894) 1.
HISTORICAL EVOLUTIONFirst Bank of Nigeria Plc is a foremost bank in Nigeria, having been established in 1894, before the amalgamation of Nigeria in 1914. The bank provides a comprehensive range of retail and corporate solutions. The bank’s services covers an array of business interests such as Insurance brokerage, bureau de change, private equity/venture capital, pension funds management, registrarship, trusteeship, mortgages, capital market operations and microfinance. Some of the services and operations are undertaken through its subsidiaries and affiliated companies birth within and outside the country – Nigeria.First Bank is quoted on the Nigerian Stock Exchange and has an unlisted Global Depository Receipt (GDR) Programme. The bank’s mission is to remain true to her name by providing the best financial services possible. This is premised on a vision “to be the clear leader and Nigeria’s bank of first choice”.
In pursuance of the bank’s mission and vision, the bank chose the unique brand of services for Enterprise, service excellence, heritage and leadership as its pillars to drive its chosen strategic priorities for growth, performance management, people focus and operational excellence.The bank has operated for 115 years and has international presence through its subsidiary in FBN Bank (UK) in London and Paris with offices in Johannesburg and Beijing. The comprehensive range of retail and cooperate services and solutions offered by the bank had enabled it to garner 1. 3 million share holders across several countries, with enormous and cutting – edge capacity to effectively service 4. 2 million customers through 536 branches in Nigeria and thus contributing to national economic development. . BUSINESS REVIEW 1.
GENERAL BUSINESS OUTLOOK Inspite of the vagaries of the global financial and economic down turn, First Bank during the period under review, notched up several mile stones with balance sheets that demonstrate strong total assets growth with loan portfolio and deposit base recording significant increases. At the same time, capital adequacy exceeded with the regulatory requirements and the bank set target. Among the business mile stone achieved by the bank during the period under review are: ) The arrangements and structuring of a complex finance of a first major public – private partnership (PPP) road end construction project in Nigeria; the LCC Lekki – Epe Express way project. This is a land mark deal that made the bank won the Euro money project Finance Award of PPP deal of the year. ii) The mandate given to the bank for the financial restructuring of UACN property Development Company. iii) The Cross River State Government of Nigeria financial advisory Services on the Calabar Energy city project and v) The Katstina State Government for advisory on the implementation of a state wide microfinance scheme etc. The corps of critical mass of human resources with unique demonstrated knowledge, understanding and expertise has paved the way for the bank to weather the storms of the general turn down of global businesses.
2. CORPORATE SOCIAL RESPOSIBILITY (CSR) First Bank of Nigeria has over the years engaged in corporate social responsibility (CSR) as part of its brand building programmes by making regular and substantial contributions to the well being of grass roots communities and Nigerians.FBN has shown unrelented commitment of CSR strategy of being socially, economically and culturally responsible. The CSR initiatives focus on development priority areas and targeted support for education, health, welfare, youth development, entrepreneurial and economic development as well as sustainable environment and adequate security for economic progress. 3. RISK MANAGEMENT DISCLOSURE The philosophy of steering a steady ship is one of the strategic priorities designed by FBN to achieve operational excellence for managing enterprise risks in a turbulent global economic condition.This conception made FBN took the voluntary initiative to move disclosure practices in risk management toward international standards even though the policy and principle of disclosure is not at present a requirement of the financial regulatory agencies such as Accounting Standards Board (NASB), Central Bank of Nigeria (CBN), the Nigerian Stock Exchange (NSE), the Security and Exchange Commission (SEC).
The challenges posed for risk management is accentuated by the harsh operating environment such as the impact of the increased capitalization levels of the bank, resultant pressure on margin loans and interest and the competitors.However despite these challenges, the bank has adopted businesses with large exposures but in low risk transactions, while growing a structured granular and diversified retail portfolio to take advantage of higher margins. The major bottle necks to the bank’s plan for strategic growth with its attendant impact on the economy are the sharp depreciation of naira, infrastructural problems – Energy (including power), security and the Niger Delta crises.Nevertheless, FBN still focuses on further opportunities that are open up in infrastructure financing, special loans in the power/oil and gas sector and real estate development. All these are areas of growth that FBN is exploiting and consolidating on during the period under review. 3. FINANCIAL REVIEW 1.
CORPORATE GOVERNANCE First Bank of Nigeria as a foremost going concern in Nigeria banking Industry appreciated the pivotal role of good governance practices. This is informed by the need to sustain its profitability, leadership position and commitment to delivering value to its share holders and host communities.Similarly, the bank recognizes the need to be proactive against the systemic risks engendered by the impact of the current global economic crises in terms of macro – economic structure of the financial services sector in Nigeria. In order to avoid corporate governance failures, the bank took a precautionary measures by strengthening its regulatory standards and frame work to meet the challenges associated with potential and real dangers of systemic risks posed generally by each financial institution and the global economic melt down. In pursuance of this policy framework, the bank embarked on among others: The tenets of the local governance codes to include ensuring the integrity of the Bank’s accounting and financial reporting. • Continued attention to pay heed to the best breed investment governance practices required to deliver sustainable value to its shareholders. • Implementing a new group governance framework in order to better govern and control the subsidiary companies.
• Systemic changes and re – engineering of the bank’s Board and related committees thus transiting them from a consultative group to a decision – making body responsible for ensuring the performance and implementation of the group strategy. 2.GOVERNANCE STRUCTURE AND FINANCIAL REPORTING STANDARDS First Bank of Nigeria has the largest number of share holders of the companies quoted on the Nigerian Stock exchange, with a diversified ownership structure and no single share holder owning up to 5 % of the banks issued ordinary shares. This gives the bank a broad and rich pool of talents for its board and allied committees. In order to further strengthen its corporate governance standards and enhance transparency and disclosure in its financial reports the bank adopted the International Financial Reporting Standards (IFR) as certified by International Accounting Standard Board.This aligns with the strongest global standards of transparency in financial reporting. Even though IFR is not yet the practice in Nigeria, the adoption by FBN in convergence with the local Statements of Accounting Standards (SAS) is with a view to enhancing shareholders value and bring added values to its business relationships with numerous overseas compounding banks, multilateral organizations and international investors.
3. OVERVIEW OF FINANCIAL RESULT Source: First Bank 2009 annual reportHighlights of the 2009 – 2010 results include strong organic revenue growth despite the difficult operating conditions, characterized by high levels of volatility, declining asset prices and reduced liquidity. Gross earnings for the Group grew 40 % from N155. 7 billion in 2008 to N218. 3 billion in 2009. This compares to 41. 8 % growth in gross earnings achieved by the Bank over the same period to N185.
2 billion (2008: N130. 6 billion). All except one line of business were profitable in 2009, with subsidiaries contributing 15. 2 % to the Group’s gross earnings (2008: 16. %) (Appendix I-V). The Group’s total balance sheet plus contingent liabilities increased by 30. 5 % from N 2.
1 trillion in the 2007/2008 financial year to N 2. 7 trillion in 2009. During the review period, the Group’s shareholders funds declined by 4. 1 % to close at N 337. 4 billion compared to N 351. 9 billion in the previous year. The Bank’s total balance sheet plus contingent liabilities increased by 45.
4 % from N 1. 4 trillion in 2008 financial year to N 2 trillion in 2009. In the same vein, the Bank’s shareholders’ funds grew by 3. % to close at N 351 billion compared to N 339. 8 billion in the previous year (Appendix I-V). 4. STATEMENT OF FINACIAL POSITION ANALYSIS Strong Total Assets Growth: Total assets for the group rose from 31.
5 % over the N 1. 5 trillion recorded in 2008, supported by significant growth in loans and advances (LAD). Loans and Advances The Group’s gross LAD figure for end-March 2009 stood at N 775. 7 billion, representing an increase of 59. 6 % over the N 486. 1 billion recorded in the same period in 2008. Net loans for the Group rose 57.
9 % to N 752. 2 billion from N 476. billion in 2008. The Bank’s gross loans rose 56. 8 % to N 717. 2 billion from N 457. 5 billion in 2008.
The Bank’s net loans rose 55. 3 % to N 695. 9 billion from N 448. 1 billion in 2008. Along business lines, corporates were responsible for 50 % (2008: 67%), whilst consumer and retail accounted for 15 % (2008: 13 %) and 35 % (2008: 20%) respectively of the Bank’s loan book. The major sectors accounting for this impressive growth in the loan portfolio were the oil & gas (21 %), manufacturing (17 %), consumer goods (12 %), retail services (11 %) and real estate (10 %).Healthy Deposit Base The market responded in predictable fashion to the increase in general financial and economic uncertainty over the past 12 months, with depositors seeking out safe havens for their funds.
Also due to market perception of the First Bank as one of the strongest and most dependable banks in Nigeria, the Group enjoys a relatively low cost deposit base by attracting small savers whose principal consideration is the safety of their funds. Reflecting this, total Group deposit liabilities rose by 70. 6 % to N 1. 2 trillion (2008: N 700. 2 billion). Liquidity AnalysisThe global financial crises and margin-lending related exposures by the banking industry continued to have adverse effects on the liquidity and funding risk profile of the banking industry. The Bank continued focus on liability generation, is a necessary pre-condition for significant asset growth.
Capital Adequacy The Group’s capital adequacy ratio (CAR) was 24. 3 % (2008: 42. 3 %), significantly higher than the regulatory requirement of 10 %, and our internal target of 16 %. The Bank recorded CAR of 29. 7 % relative to 48. 2 % in 2008. The solid capital position, stable funding and liquidity base provide key support in challenging times.
. INCOME STATEMENT ANALYSIS Gross Earnings Gross earnings of the Group rose by 40. 2 % from N 155. 7 billion in 2008 to N 218. 2 billion in 2009. Interest earnings which rose by 55. 8 % over the N 100.
7 billion recorded in 2008 was the most significant growth item, accounting for 71. 9 % (2008: 64. 7 %) of the total, fees and commission made up of commission and charges, financial advisory as well as custody fees, contributed 15. 5 % (2008: 18. 2 %), income from trading (predominantly fixed income securities) contributed 8 % (2008: 11. 8 %) whilst other income contributed 4. 6 % (2008: 5.
3 %).Through the rise in contribution of interest earnings to gross earnings reflects to a large extent the rapid credit growth, it also captures the general deterioration in economic and capital market activities. For the Group, interest from loans and advances contributed 71. 9 % to total interest earnings, whilst other bank sources such as placement and local banks, interest and deposit with banks outside Nigeria, Treasury bills and commission on managed funds accounted for the balance. The bank’s formidable strength and dependable services have sustained it in the turbulent global economic conditions.And this has engendered an average of 31. 5 %.
However profit has declined by 65. 7 % over the 3 years period of 2008 – 2010 under review. Net Interest Income In 2009, net interest income for the Group rose 47. 6% while the net interest margin narrowed to 8. 5% from 10. 1% in 2008. Strong year-on –year growth in net interest income was recorded across all business lines, with Retail and Corporate Banking interest income, at N90.
2 billion (2008: N61. 7 billion). , up 46. 3% representing 88. 5% of total net interest income for the Group.Growth in Retain and Corporate banking captured significant expansion of the loan book in the period under review. Investment and capital markets, Asset Management and Mortgage Banking recorded 43.
2%, 208. 8% and 73. 3% growth respectively over the previous year. This represents 7. 7%, 2% and 0. 8% respectively Group net interest income. The decline in the Group’s net interest margin was driven predominantly by the 73.
9% rise in inerest expense in 2009, to N54. 9 billion (2008: N31. 6 billion). The rise in interest expense over the period under review reflects the following: • The impressive 70. % growth in the volume of deposits • Heightened competition for share of customers’ wallets particularly in the fourth quarter of 2008, which led to a significant hike in deposit rates across the industry, especially for term deposits. • Expectation of the implementation of the common year end policy. • Heightened counterparty risk which led to increased inter-bank funding costs as banks became reluctant to lend to each other in the wake of the global and domestic liquidity squeeze.
• Safety of funds became an overriding concern as the operating environment got tougher for banks in the wake of the global financial crisis.Thus, we took a decision to hold much higher balances with the CBN – albeit at low yields. The bank has traditionally sought to attract lower cost demand and savings deposits in order to keep its funding cost as low as possible and has attempted to minimize its reliance on higher cost time deposits as a significant source of funding. In the last financial year, reflecting keen competition for deposits within the industry, time deposits, representing 27. 7% of total deposit liabilities, were responsible for 46. 6% of interest expense-underscoring the aforementioined higher cost of funding.Non-Interest Income Non-interest income, composed of fees and commission income, income on traded securities, predominantly fixed income, as well as other income, grew a mosdest 11.
5% and contributed 28. 1% to total gross earnings in 2009 (2008: 35. 3%). Theis performance largely reflects the generally slower paceof activity in the economy. Fees and commissions grew by 19. 5% in the review period while net income on securities traded, after providing for diminution in value of equity investment, declined by 19. 3%.
Income of traded securities amounted to N17. 5 billion as at March 2009 (2008: N18. billion). 92. 7% of this was derived form interest on federal and stage government bonds while the balance of N1. 3 billion was gained through disposal of shares (2008: N1. 9billion).
Other income, responsible for 4. 6% of gross earnings, was 20. 6% higher, driven by strong growth in foreign exchange income (209. 8%), lease income (73. 5%), as well as recovery of N2 billion in loans previously written off. Operating Expenses The Group’s cost-to-income ratio rose to 66. 8% (2008: 63.
7%). This was driven by a 30% rise in operating expenses from N68 billion in 2008 to N88. 4 billion in 2009.Staff costs remained the major component, at 51. 85, with year on year growth of 37%, reflecting a change in the mix of head count in selected client facing and other strategic areas across the Group, as well as sustained pressured on wage costs as the competition for skill remained keen. Administrative general expenses rose 29%, and constituted 36. 8% of overall costs, reflecting a higher inflation environment.
6. CUSTORMERS CONFIDENCE IN FIRST BANK OF NIGERIA The banking business is driven and sustained by the confidence users have in the persons and institutions that provide the service.The imperative of this relationship for customer’s confidence is anchored on sustainable trust and integrity. This is also central to the making of a successful bank and banking system. It is this believe that makes the First Bank flourish in their financial intermediation services. By virtue of the nature of banking services and the unique position of FBN in the banking system in Nigeria and its pivotal role in particular and general interest in the Nigerian economy and the global market, FBN has been able to develop a formidable capacity for confidence building with stakeholders.This is manifested in the myriad of factors such as proper and effective business and financial performance, unassailable high level of professionalism, ethical practice of banking which has grown and strengthens its businesses built on sustainable principle of best practices and system.
7. PERFORMANCE RANKING Consequent to the foregoing, the Economic Intelligence unit of the business world magazine reported on its special publication, on the Nigeria’s one hundred (100) largest companies 2010, the following statistical data on ranking on FBN:FIRST BANK OF NIGERIA PLC PERFORMANCE RANKING IN THE BANKING SECTOR AND AMONG 100 COMPANIES IN NIGERIA | | | |Ranking Among | | |Factors |Performance Indices |Banking Industry |Largest 100 Companies | |1. |By Assets |2172. 35 (N billion) |1st |1st | |2. By Revenue |196. 41 (N billion) |4th |5th | |3. |By Profit |3.
19 (N billion) |4th |18th | |4. |By Shareholder’s Funds |309. 56 (N billion) |2nd |2nd | |5. |By Market Capitalization |349. 8 (N billion) |1st |2nd | |6. |By Number of Employees |8757 |1st |3rd | Source: Adapted from the Business World – A Special Publication, 2010 SUMMARY AND CONCLUSION First Bank of Nigeria during the period under review has been able to maintain its focus on expanding the one – stop financial services supermarket concept and a progressive internationalization strategy and launching of new businesses.This has provided the strong foundation that demonstrated the bank’s ability to withstand the global economic and financial storm.
The bank’s liquidities and risk management strategies has engendered solid capital position, stable funding and liquidity base for providing key support in challenging times. Similarly bank risks management frame work policy and strategy had enabled it to strike a balance between providing useful information that enhances transparency and responsibility to protect customer’s interest.In conclusion, the unalloyed commitments of the Bank to sustained best practices good corporate governance and professionalism, using due process, transparency, accountability, compliance with laws, rules, regulations and financial services guidelines had greatly enhanced the impressive business and financial performance of the bank and thus eliminated the crises-precipitating factors that are capable of destroying or eroding the trust and confidence of the stakeholders in the bank consequently the bank has been able to excel in its business and financial performance during the period under review.