Why we need N100bn, by Okey Nwosu,
MD, FirstInland Bank
By SEUN ADESIDA
Monday, January 21, 2008
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•Okey
Nwosu
Photo: Sun News Publishing |
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You would have expected him to praise his bank to high heavens
like most other bank-managing directors would do. But that
is not Okey Nwosu, managing director of FirstInland Bank.
In this chat, he revealed the strength, weaknesses and advantages
of his bank. And in what looks like an attempt at reassuring
the Central Bank of Nigeria (CBN) and the investing public
that FirstInland Bank is really in need of every extra fund
it can raise and that this will be deployed judiciously on
the business plan it has submitted to the regulatory authorities.
The bank is in the market to raise additional N100billion
and Nwosu believes that they will take measures to ensure
that all activities related to the offer are executed on schedule
to save investors the trauma and loss of money that often
arise from delay in getting title documents on their investments.
Mr. Okey Nwosu said the bank would ensure that share certificates
are dispatched to investors as timely as it has never happened
before since the beginning of banking consolidation.
First Inland Bank is targeting in gross earnings of N50 billion
and N76 billion in year-end 2008 and 2009 with profit after
tax projected at N8.9 billion and N24.9 billion respectively
in the next two years. The bank promises shareholders whopping
dividends from 2009 beginning with 31 kobo per share.
The bank in the past financial year, which ended April 2007,
posted a profit after tax of N6.5 billion. Total assets and
contingents rise to N275.7 billion from N138.7 billion in
2006, representing 99 percent growth. Customer deposits grew
to N147 billion up from N62 billion in 2006, showing a positive
variance by over 137 percent.
The MD said the bank is yet to unlock its full potentialities
and project a doubling in returns to shareholders within the
next one year. He spoke on the cross border expansion drive
of the bank, the efforts to strengthen subsidiaries and deepen
IT in a chart. Excerpts
Why N100billion
Let me start with the timing of the offer. I believe this
is the right time to do so. We are in January, the beginning
of the New Year. Our financial year-end is the end of April.
We hope to complete the exercise in good time and take up
the capital for the next full financial year.
We want to have a bank that is capitalized somewhere around
$1 billion. That is to be able to support the level of business
we are doing. If the bank is able to get additional N100 billion,
that will take it above $1 billion in shareholders’
fund base.
That level of capital will, in the next two years, support
the business we are doing. We want to deploy the capital to
a number of uses, which ultimately is to expand the scope
of our business. We need to remodel existing branches, recapitalize
a number of branches, deploy fresh capital proceeds to support
regional expansion within Africa and also working capital.
More importantly, upgrade IT infrastructure, the software
and hardware and maintain leadership in electronic banking.
Unique investment windows
Banking is not a high tech business. The difference is how
you do the business, or simply the model that you employ.
If you talk about branches, the physical branch might sound
generic but First Inland Bank will also be talking about the
virtual branches. The way a bank makes its investments for
instance in IT, brings the unique aspect of that financial
institution.
When First Inland Bank talks about expansion by opening subsidiaries,
it is going to have a different model of it, not the very
type other operators are looking at. When we talk about expansion
in African region, we are not just going there because Bank
A or Bank B is going there. But because we believe we have
a major product, a major payment system that we think will
benefit the payment system of the emerging banking system
in Africa. That is the unique factor we will use in driving
our operation in that region.
Our structure
The structure we put in place can sound general but within
the different businesses, we have our unique approach. The
model of the kind of branches we have will show it is a different
kind of banking we are talking about. What the bank is going
to look for by investments in other countries is to leverage
on existing businesses over there. We are not going to any
country just to look for fresh licence. We will want to invest
in an existing institution. Whatever organization we invest
in, we do that to get more than we put in from day one. The
bank will draw from its experience in mergers to make sure
that whatever merger or acquisition it embarks upon really
adds value. All that will be consistent with our overall objectives
to go for growth in the short, medium to long term.
First Inland Bank against others
The bank and the offer is quite unique. Incidentally, there
will be about three banks in the same market to raise funds
by next week. But First Inland Bank is special in many ways.
If you look at the pricing of its three instruments for instance,
they are very attractive. The price the public offer is going
is the greatest value you can get at about 30 per cent discount.
It means you begin to gain from the first day you invest.
That is very generous indeed. Apart from the discount, the
investment has high prospects for significant capital appreciation
within the next one year. It is believed to continue in that
direction, years after. If you look at what has happened in
the bank in the past one year, it has delivered more that
260 per cent in share appreciation. If you look at some fundamentals,
you will discover the stock will continue to grow.
Market capitalization
Take the market capitalization to the book value, an indication
of the multiples of the book value that the shares are trading
for instance; the average in the industry is about five times
the book value. But First Inland Bank, post offer, will trade
less than two times. When you compare that to the industry’s
average, there is high potentialities for the bank to trade
four times –of course leading to a doubling of value
in the share price. The bank came to the market at the prevailing
price and volume having come out of a major integration process
and realized that the value of that institution is yet to
unlock. As you can see, the financials in the past one year
has grown significantly, increasing in terms of assets, deposit
liabilities and other indicators. This year, our projections
are bigger with the balance sheet almost doubled. The bank
is going to more than double its major indicators after current
recapitalization.
Investors maximizing value early enough
In terms of the share certificates delay, we have put in place
a detailed plan to overcome the challenge. Interestingly,
some of the problems that are statutory have been removed
such as shares verification, which will now be done post allotment.
The challenge now is to make returns early as well as file
documents at the right time. We have set up a team that will
ensure things go right from day one, above all ensure that
records that are coming to us are properly reconciled before
they are forwarded to the regulatory authorities.
We believe that not later than six weeks after allotment,
share certificates will be dispatched to investors. We want
to set a record as the fastest offer to get at conclusion
in the history of the banking consolidation, to date.
Acquisition plans
On the acquisition plans, we are looking at doing that in
any area we will be operating. We want to use the option of
taking up an existing business as the first strategy. In our
expansion plans outside the country, we are looking at existing
banks. The discussions are ongoing but the banks we are talking
with will not be disclosed now. Whichever bank we acquire,
the overriding objective will be to add value to shareholders,
taking advantage of our earlier experience.
Managing over-subscription
As much as possible we will take in what the regulatory authorities
permit us to take. In the event that we can’t take all,
we will return money as early as possible to investors
Dealing with competition and industry challenges in the new
era
The bank has overcome most of the challenges of consolidation.
We have successfully recreated one financial institution out
of the four erstwhile banks. The bank is now repositioned
with a number of subsidiaries that include First Inland Securities
and Assets Management Company, First Inland Mortgages, First
Inland Capital and First Inland Online, which is used as a
vehicle to promote the bank’s e-banking services.
We intend to open 30 new branches in the next three to four
months. First Inland Bank is currently ranking among the top
10 banks in the country in terms of balance sheet size. We
are about in the 11th position by deposit liabilities and
fall in the eighth position in branch network. The bank is
embarking on further capital drive to boost its capacity for
big-ticket transactions and to play globally.
ATMs panacea
It is observed that in the area of ATMs and other IT products,
First Inland Bank has not been as pushy as other organizations
in the industry. But when the bank started with Flash Me Cash
as an IT driven brand, it was a huge success. It has remained
a good product within the bank and I can’t remember
a product that has been that fantastic especially by its uniqueness.
Maintaining leadership
If you have a winning formula, the best thing to do is maintain
it. Part of the purpose of this offer is to expand our information
technology base. We want to improve on our payment system.
A lot of banks are looking at consumer banking. IT is important
as it complements that area of growth. We are looking into
those areas that will improve on our consumer services using
the IT platform. That will also reduce our cost. You know
all banks are now talking about electronic banking, even those
that have not really done anything in that area. But you know
they can’t do without it. We will strive to maintain
our leadership in the IT platform. We will continue to set
the pace.
New products
We have rolled out new products in recent times through which
we try to build on the Flash Me Cash brand and platform. You
know in developing a product, every brand has its life cycle.
It cannot remain a ground-breaking thing if you keep launching
it on an annual basis. Our customers have not enjoyed the
benefits of the Flash Me Cash to the fullest, so we will continue
to drag the product beyond where it is today.
The awareness and usage of the product has increased in recent
times and it is not unconnected with the fact that a number
of organizations are trying to push the same thing. If you
noticed in the past two or three years, the former First Atlantic
Bank was on it alone but the truth of the matter is that such
an innovative product will do well with other banks participating
because it can go on any platform. But initially, some banks
saw it as the product of one financial institution.
Brand restructuring
We want to restructure the brand and make it an international
product because in most places we have presented it, people
received it with applause. The bank intends to make the product
apply in other countries outside Nigeria. We are starting
from Ghana and thereafter other financial centres of the world.
Our expansion plan in terms of product development and even
as related to the Flash Me Cash is unfolding as the bank is
currently talking with various foreign financial partners
that are interested in the bank and in its products.
Flash Me Cash is certainly a massive opportunity for us and
we are working hard at it.
After the capital raising exercise, we will embark on a major
brand push that is aimed at boosting perceptions and all that
tremendously. The bank has embarked on extensive mobilization
of ATMs by deploying the equipment at strategic locations.
We have about 20 ATMs spread across the country now. But you
can also access your account with us on any ATM that is on
the Interswitch network.
Mortgage, pension, microfinance
We need to be very careful about how we approach this thing
the financial supermarket model as we are looking at it. The
reason is that most of these businesses are specialized areas.
You may have the need to run them separately. You talk about
mortgage; we have plans to go into that area as major growth
sector.
We plan to acquire an existing mortgage bank and that will
be announced in due course. That will give us a good start
immediately. We have also made efforts in the pension area.
We have interest in insurance as a major growth sector. We
know that the insurance sector is developing, and we are taking
steps to maximize benefits in that sector. We are already
working to make our subsidiaries contribute substantially
to the group revenue. We have a capital market subsidiary
that is doing well. There is the Registrar as a subsidiary.
It is also doing well. But part of our post offer plans is
to put in money in existing subsidiaries and also move into
new areas.
Returns on their investment
Our projections have good dividend yields. We have about the
best projections on dividend yield you can get in the industry.
We have a track record of dividend payout before consolidation.
In the present circumstances, with enormous capital, you need
not retain profit but pay it out as dividend, give bonus and
all that. We are assuring our shareholders that we are working
for them by making sure that their investment grows.
It is because of our concern on returns that we are raising
a blend of equity and debt. We are aware that if you are going
to raise the entire N100billion on equity, it is going to
dilute what you have. But now the denominator will be smaller,
so investors are likely to have more in terms of returns.
Our decision to explore both options was well thought of.
Debt is expensive but it gives people opportunity to have
their returns.
You will also notice that most foreign investors that come
to Nigeria, come first of all with debt as a shield for investment
risk. We are an emerging market, so the country has a kind
of risk perception. The debt option is actually targeted at
interested foreign investors. They will have it in the form
of convertible debenture, so that overtime they can convert
it to equity. It is good for our returns. If the investors
later decide to convert the debenture to equity, it won’t
pose serious challenges since the money would have been working.
Opportunities and challenges locally and globally
Opportunities are large in the nation’s banking industry.
Nigerian banks are in a position to do better post consolidation.
By the time banks raise the new capital they are pursuing,
you will notice that their individual sizes won’t even
equal the size of most banks in the world even in South Africa.
Through consolidation, the Nigerian economy is growing and
looking at the opportunities in the country, we should do
better than those countries.
The nation’s financial industry should take leadership
in Africa given the type of resources that we have, the human
and material resources and the opportunities that come with
them. It has actually taken consolidation for people to realise
that Nigeria can go places in banking. Most banks that have
increased their capital base can go global. Even when you
invest locally, we have not tapped all the opportunities that
abound here. That will partly address the challenges of performance.
Fitch has rated Nigerian banks at the level of low vulnerability,
thereby raising the stakes of the local financial institutions
in the international arena.
The industry is yet to reap the enormous potentialities in
banks’ consolidation. It is yet to explore consumer
and mortgage banking to the fullest and other areas that command
tremendous earnings potentials and opportunities.
FirstInland Offer
FirstInland Bank is in the primary segment of the stock market
for fresh capital, having floated a hybrid issue comprising
5 billion ordinary shares of 50 kobo at N9.50 per share; another
4 billion irredeemable non-cumulative preference shares of
50 kobo each at N9.50 kobo per share and rights issue of 968.9
million ordinary shares of 50 kobo each at N8.50 per share.
The offers billed to close on January 31 are for the purposes
of rising about N100 billion fresh capital and increasing
shareholders’ fund post recapitalization to a minimum
of N130 billion. The additional fund, by the offer prospectus,
is to finance the expansion of branch network, upgrade information
technology, recapitalize subsidiaries and boost working capital.
Purpose of the offer
The N89.6 billion sought by the bank in the N5 billion ordinary
shares offer and the N4 billion preference shares offer, as
well as the N968.863 million right issue were aimed at expanding
the bank and improving on its Information Technology infrastructure.
The purpose of the offer is to use the N89.636 billion-estimated
net proceed from the offer to finance the expansion of branch
network, upgrade the information technology infrastructure,
recapitalise/develop subsidiaries and provide working capital.
The estimated completion period of all the work is two years
at the maximum, the bank’s performance in the past year
was a good indicator that it was good business to do.
The progress of the FIB in the past is owing to the support
of the bank’s shareholders. As we are advancing the
fortress of development, we plan to do a lot of activities
that will ensure that any investor gets capital appreciation
and dividend income. Therefore, I would like to recommend
the offer to any investor.
Share certificates
The bank would ensure that share certificates are dispatched
to investors as timely as it has never happened before since
the beginning of banking consolidation. FirstInland Bank is
targeting gross earnings N50 billion and N76 billion in year
end 2008 and 2009 with profit after tax projected at N8.9
billion and N24.9 billion respectively in the next two years.
The bank promises shareholders whopping dividends from 2009
beginning with 31 kobo per share.
Performance
The bank, in the past financial year to April 2007, posted
a profit after tax of N6.5 billion. Total assets and contingents
rise to N275.7 billion from N138.7 billion in 2006, representing
99 percent growth. Customer deposits grew to N147 billion
up from N62 billion in 2006, showing a positive variance by
over 137 percent.
FirstInland is yet to unlock its full potentialities and I
am projecting a doubling of value in returns to shareholders
within the next one-year.
Cross border expansion
On the cross border expansion drive of the bank, the efforts
to strengthen subsidiaries and deepen IT, let me start with
the timing for the offer. I believe this is the right time
to do so. We are in January, the beginning of the New Year.
Our financial year-end is the end of April. We hope to complete
the exercise in good time and take up the capital for the
next full financial year.
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