The Soul of First Bank Rages

Introduction:

First Bank of Nigeria, a leading financial institution, is embroiled in internal turmoil that has ignited concerns about its essence and impact on the broader Nigerian banking landscape. This article delves into the unfolding events and key individuals involved in the fierce battles while exploring the potential implications for First Bank and the broader banking sector in Nigeria. The conflicts at First Bank reverberate beyond its walls, casting a shadow over the wider Nigerian banking sector and raising concerns about the strength of corporate governance practices, risk management frameworks, and the overall stability of financial institutions.

Investors Vying for Control; The Battle for First Bank:

Recent developments have seen influential figures such as Oba Otudeko, Femi Otedola, Hassan Odukale, Mike Adenuga, and Saheed Arisekola actively buying shares of First Bank in their pursuit of control. These acquisitions have added another layer of complexity to the power struggle, with each shareholder seeking to shape the institution's future direction. They are not new players in the game; they have been at the shadow events mopping up shares. Femi Otedola took over control from Hassan Odukale in 2019 as the largest shareholder after Otudeko lost out to Odukale due to CBN's intervention.

The involvement of these men in the battle for control of First Bank highlights their keen interest in the institution. First Bank is one of Nigeria's oldest and leading financial institutions, making it an attractive investment portfolio for investors looking to maximize their financial gains. These investors can benefit from the bank's profitability and dividend payouts if they continuously increase their shares and decide who sits on the bank's board to run its operations.

The control for First Bank holds strategic importance within the Nigerian banking landscape. Being a prominent player in the industry, gaining control of First Bank provides a platform for these individuals to shape the banking sector's direction and influence critical financial industry decisions.

Furthermore, First Bank's troubled internal dynamics and the ongoing power struggle have raised questions about the bank's organizational integrity and governance framework. These investors seek to influence the bank's governance structure and safeguard their interests.

Overall, the interest of these men in the bank's ownership stems from a combination of financial considerations, strategic positioning within the Nigerian banking sector, and the opportunity to dictate the bank's growth. Their involvement adds another layer of complexity to the ongoing internal turmoil at First Bank.

Liquidity and Capital Adequacy Ratios (CAR):

As of 2022, the Central Bank of Nigeria pegs its liquidity ratio and CAR at 30% and 15%, respectively. Zenith Bank has stood out on both counts. The bank closed with a 67% liquidity ratio and 19.8% CAR. GTCO closed with a 49.9% liquidity ratio and 24.1 CAR, while Access Bank closed with a 39.5% liquidity ratio and 20.2%. For First Bank Holding, they closed with a 31.7 liquidity ratio and 16.8% CAR. Apart from Zenith Bank and GTCO, which saw an increase in liquidity position from the previous year, others dropped further in their liquidity ratio. However, all four banks dropped their CAR ratio compared with the year earlier.  

Market Capitalization:

As of 2023, market capitalization for the affected banks is as follows: Access Bank was N73.2 billion, N56 billion, and N52.9 billion in 2023, 2022, and 2021 respectively. GT bank was N4.7 billion as of 2023, which has been so in the last two years. First Bank witnessed an increase in market capitalization from N445.1 billion in 2022 to N398 billion in 2023, while it was lower in 2021 at n260.2 billion.

Loan to Deposit ratio:

First Bank loan to deposit ratio in 2021, 2022, and 2023 stood at 0.53, 0.58, and 0.59, respectively. GT bank for the years in view stood at 0.44, 0.41, and 0.37, respectively, while Access Bank was 0.06, o.49, and o.49, respectively.

Efficiency Ratio:

The efficiency ratio for Access Bank in the last three years, from 2021 to 2023, was 0.56, 0.40, and 0.38, respectively. For GTB, it was 0.54, 0.54, and 0.45 in the years in view, while First Bank recorded a drop in 2023 with a 0.52 efficiency ratio. In 2021 and 2022, its efficiency ratio was 0.52 and 0.58, respectively. 

Dividend Paying Bank:

GTCO Plc is the best dividend-paying company in Nigeria. Investors get back more for each naira they invest. GTCO's dividend yield is about 17.18%, higher than Zenith Bank, which had a 14% yield. Access Bank had an 8.43% yield, while First Bank was just 2.6%. First Bank's dividend yield of 2.6% has decreased over the last ten years. For most investors, dividends provide steady income, perceived as a signal of a company's financial strength.

Shareholders Structure

For the banks, the ownership structure and concentration affect the availability of shares. Ownership concentration gives the shareholders the capability to monitor and control the decision of management.

Access Bank, Zenith Bank and Gt Bank shares remains closely held by institution, management, staff and a small number of its founding shareholders. They were banks that were privately owned before going public and the shares available are monitored closely.

Of all the banks in view, First bank is the only bank whose shares were partly owned by the federal government before selling it to the public. They are publicly quoted, making the shares readily available for takeover, which makes it the reason why they will continue to tussle for its control.

Overview of First bank landscape 

First Bank Holdings is not among the top three performing banks from the various performance indicators. It released its group financials two months after the deadline set by the Nigerian Stock Exchange. The CBN has said that First Bank was "plagued by bad credit decisions, significant and non-performing insider loans, and poor corporate governance practices." This led to CBN's sacking of the board in 2021. Amongst the issues pointed out by regulators was that it had breached its acceptable prudential guidelines with its low CAR and non-performing loans ratio. Amongst the decision was the immediate removal of all directors of FBN Limited and FBN Holdings Plc directors.

Despite all this, pundits believe that from whichever angle one looks at the bank's performance, especially in the last seven years, it has seen constant growth. Its 2022 results performance has seen tremendous improvements in all performance metrics. From increased customer accounts, customer deposits, issued cards to increased FirstMobile Users, USSD users, and digital banking customers. With its agent banking reaching the underbanked and unbanked, FirstBank has empowered about 600,000 people. 

Another noteworthy accomplishment was that the bank reduced its non-performing loan from 45% in 2015 to 5.6% in 2022. The bank's most visible indication of its return to profitability was the quantum jump in its share price, which moved from N4.88 to N14.17.

Invariably, the bank has many records itself. First Bank was the first bank to reach N1 trillion market capitalization on the Nigeria Stock Exchange; the first financial institution to engage in an N100billion hybrid offer that marked the largest public offer on the Nigerian Capital Market and the First Nigerian Bank to establish an off-shore subsidiary-First Bank UK Limited amongst others. The bank was the first to build a Technology Academy in Nigeria, which has helped the bank construct a transaction-led machine.

Amongst industry experts, the prospect for the bank looks good with its first quarter year 2023 report, which has received impressive ratings since it was made public. For example, gross earnings increased by 44.2% y-in-y, and net interest income grew by 50.9% y-in-y. Despite the high operating expenses due to inflation, there was substantial growth of 57% and 54.8% in profit before and after tax, respectively, for the first quarter.

Regarding the overall banking sector performance, analysts are optimistic about the continuous growth and expect annual earnings of 18% over the next five years. Investors are optimistic about the Nigerian banking industry and are confident in the long-term growth ratios.

Naira Devaluation:

As a fallout of the devaluation of the naira by the Central Bank of Nigeria (CBN) to unify the foreign exchange market, analysts believe it may lead to another round of mergers and acquisitions in the banking sector.

The recent naira unification has led to the depreciation of the naira, and the dollar value of Nigerian bank capital has been discounted. The consequence is the need for banks to re-establish the dollar value of bank equity to support their ability to finance large transactions. The devaluation of the naira has led to a decrease in the value of assets held by Nigerian banks, and this can significantly impact their balance sheet, investments, increase in non-performing loans, and other assets denominated in foreign currencies will decline. The overall implications are challenges in maintaining capital adequacy ratios and meeting regulatory requirements.

The banking reforms in 2004, when the minimum capital requirements rose from N2 billion to N25 billion to meet a capital base of $250 million. That recapitalization led to banks consolidating through mergers and acquisitions to meet the minimum capital base requirement. It saw the number of banks reduce from 89 to 25.

Considering the volatile nature of the domestic financial market, all banks will require a fresh injection of capital to meet new capital requirements. 

First Bank, as a tier 1 bank with a dual listing, has the favorable advantage of leveraging quick access to capital market funding.

It is expected that CBN would want banks to have a solid capital base to ensure the sector's sustainability. Recapitalization is necessary because valuation is done in foreign exchange rates, and the strength of most banks would have declined marginally due to the naira devaluation. Today, if we relate N25 billion at N750, it is substantially lower to just $33.3 million compared to the average $250 million earlier earmarked in 2004.

Also, as long as First Bank wants to continue playing in the big league, it will have no choice but to increase its capital base. First Bank's current assets size is N11.36 trillion, and they are fourth amongst the top five categories.

The bank will likely look inwards and outwards for recapitalization and outward, and the possibility of mergers and acquisitions of weak banks in the nearest future will not be ruled out.

CONCLUSION:

Experts have not seen the end of First Bank's shareholder ownership tussle. The battle for the bank's ownership will continue because of what the bank represents in the banking industry. The ability to monitor and control management decisions is also at stake here, which investors find attractive. The bank's performance has revolutionized with the new generation banks and competes at par with them.

The bank might not be the number one bank amongst its peers as far as the stock market is concerned, but it offers investors opportunities for financial control and high-yield investment. 

Over the years, the bank has withstood the storm, and compared to others that started with it and before it, it can be boldly said that FirstBank is "The Last Bank Standing."