FBN Holdings Plc, one of Nigeria’s national commercial banks, defied Nigeria’s tough economic challenges occasioned by the COVID-19 pandemic to post an impressive N49.5 billion profit after tax in the first half (H1) of 2020.
Group Managing Director, FBN Holdings, Urum Eke, believes that the H1 results was a demonstration of the Grop resilience and capacity to deliver on long-term ambitions.
In an interview with Daily Sun, Eke shares the medium and long term strategies that are expected to sustain the growth trajectory while adding it would continue to extending unfettered financial support to customers especially those in the SMEs sector to fasttrack growth of the economy.
Excerpts:
Major contributors to FBN’s N49.5 bn PAT for half-year period ended June 30, 2020
The results for the year ended June 30, 2020, have underpinned the strong fundamentals of our business and stands as a demonstration of the resilience of the Group.
Globally, the pandemic has successfully separated businesses into two main buckets – businesses positioned for the future and those that need to reinvent to remain relevant in the future. Our investment in alternative channels, layered on the extensive reach of our footprints, has ensured that the Group is positioned for the changing needs of our customers both during the pandemic and in readiness to enjoys the windfall from customers’ preferences for e-channels and other alternative platforms as a result of the COVID-19 pandemic.
Consequently, we have seen a fundamental shift in our revenue model with income from alternative channels accounting for a growing share of our portfolio. This development is not by accident as we have seen over the last half a decade, a growing migration of our customers to alternative channels which now accounts for 75 per cent of transaction volume. In addition, we have also taken steps to address our asset portfolio to enhance its quality, significantly reducing our NPL in the legacy portfolio to single-digit whilst keeping NPL in the vintage book within the 1 per cent target rate for the commercial bank.
For the future, our intention is to strengthen our proposition and provide unparalleled service to the changing needs of our teeming customers. This is one of the reasons we have prioritise innovation as an enabler to meeting our aspirations. Today, we have continued to create the right environment for innovative thinking both internally through engagements of our staff and partnerships with Fintechs by leveraging the FBN Digital Lab, a melting pot for innovative ideas.
Overhauling Group’s risk management architecture to reduce non-performing loan(NPL) ratio to single digit
The success in achieving our objective of overhauling the risk management architecture is largely due to the hard work of our dedicated staff and the support of the Board in ensuring that we address the entire risk management process from the point of onboarding obligors through disbursement to loan monitoring. This involved enhancing the bench strength, retooling our workforce, incentivizing healthy behavior, and ensuring accountability.
As a result and in line with our promise to the market, we have reduced the NPL of lending entities to a single digit and on course to keep the ratio below 5 per cent. It is also important to highlight that the NPL for our vintage book, loans created in the last 3 years, remains below 1 per cent.
Handling impact of COVID-19 on our business
As we are all aware, the COVID-19 pandemic has devastated the global economy and brought several companies across industries to their knees especially those in the tourism and hospitality industry. The ripple effect has been significant for the economy and more devastating for financial institutions who provide funding and supports to these companies. In essence and save for a few companies in the technology and e-commerce sectors, the pandemic has had a broad-based impact.
For FBN Holdings, we have continued to assess the impact not only on our income in the immediate but also medium-to-long-term impact on our customers and their ability to meet obligations. An in line with the commitment to supporting our customers and providing leadership in the financial services industry, we will continue to provide unfettered access to financial services to our customers and address their needs. We are working in line with the guidance of the regulators including the CBN in providing access to funding as we seek to kickstart the economy and drive growth.
Overall, the impact on our business has been broadly in line with our expectations, and our resilience, breadth of offerings, and investment in alternative channels have ensured that the Group is able to cushion the effect and thrive.
Strategies to enhance share price of FBN Holdings on NSE
It is important to highlight that the entire capital market has been on a bear run for a long time and the NSE is undervalued relative to its peers in Africa, emerging and developed markets. This is largely as a result of the challenging macroeconomic environment as well as sector-specific challenges. That said, your observation is correct, and it is something that we continue to review internally. The relative undervaluation of FBN Holdings provides a tremendous opportunity for investors both locally and globally to benefit from the tremendous upside the stock provides. Today, the valuation of the business does not reflect the growing fundamentals as evidenced by the return on equity which has continued to improve quarter-on-quarter. More fundamentally, the Group has begun to reap the dividend of its investment in technology that has enhanced the earning capacity of the business and expanded our market reach.
Our approach to closing the valuation gap is to continue to implement our strategy and deliver results, quarter-on-quarter. Nothing succeeds like success and performance is the best response to market hesitation and skepticism. We believe the valuation will ultimately reflect the strength of the business.
Supporting MSMEs growths in times of pandemic
FirstBank has one of the most diversified customer bases in the Nigerian financial services industry and we consider ourselves the bank for the masses. This is reflected in how we have over the years supported SMEs in their journeys. Our support for the SME and other segments of the market has remained strong during the pandemic. Specifically and in line with the CBN guidelines, we are providing both broad market-based intervention as well as tailored support for SMEs including loan restructuring, suspension of interest, and principal repayment on loans. Our view remains that SME is the engine of any economy and in line with the pivotal role played by the financial institutions in fueling the growth of an economy, the FBN Holdings Group has continued to prioritise access to financial services for SMEs and key support to the financial inclusion agenda of the CBN. The retail banking directorate of the FirstBank for example has a huge portfolio of funding dedicated to the SME sector in addition to other interventions.
Planning Group’s next level strategic growth.
The last strategic planning cycle indeed ended in 2019. A new cycle started in 2020 which is expected to run for an extended period of 5 years as against the 3-year cycle we previously maintained. We decided to extend the cycle to help us focus on medium-to-long-term initiatives given the incremental benefit compared to short-range aspirations. Consequently, the market will be seeing bold initiatives with long term impact on our fundamentals that may not necessarily translate to immediate gains but with overall significant value accretion impact on the business. Over these 5 years, the aspiration of the Group is to enhance the Group’s position as a leading financial services industry in Africa by enhancing its footprints across Africa, driving the strength of the franchise in all markets where we operate and leading in technology and innovation. Overall, we aspire to continue our journey of enhancing value to our stakeholders by evolving into a transaction-led institution and driving efficiency through our entire operations.
How we’re leveraging technology to grow your business
Technology is one of the key enablers and drivers of our business and performance. As a financial institution, we took the decision to lead the market in innovation and drive down costs by leveraging technology in our revamped processes. Similarly, we also sought to extend our leadership in alternative channels, consistent with our strategy of enhancing and diversifying the income stream of the Group with increasing revenue from non-interest income. On these fronts, we have made significant progress and the financial results of 2019 have supported this position. Transactions via alternative channels have increased significantly, representing 85 per cent of total transactions. Similarly, our agent banking proposition grew in leaps and bounds with our mobile agents recording N3 trillion in transaction value and growing to over 50,000 agents across 774 local governments.
These changes have been driven by both internal considerations and accelerated by the changing external environment. We have seen a significant shift in global trends, driven by the changing needs of customers who have indicated preferences for non-physical channels. These changes had continued to reflect in our changing revenue portfolio through increasing number and value of transactions via alternative platforms which are outweighing branch visits on a ratio of 85:15. This performance is consistent with our strategy of strengthening the fundamentals of the business over the long term by making smart investments in people, technology, and process.