First Bank strengthens profitability with 1% general provisioning

First Bank’s decision to make one per cent general provisioning on its performing loans in its 2010 operating year is to strengthen future profitability says Bayo Adelabu, Chief Financial Officer of the Bank.

The bank last week announced its operating results for the year ended 2011 which show profit before tax rising to N43.1 billion from N13.2 billion in the previous year, indicating 226 per cent increase.

Addressing  financial journalists at the bank’s head office on Monday,  Adelabu said that the profitability would have been higher but for one per cent general provisioning for all performing loans. This he said reduced the profitability by N13.3 billion from N54.5 billion.

It would be recalled that the Nigeria Accounting Standard Boards (NASB) had directed banks to make a general provisioning one per cent on all performing loans. The board however gave banks the option of making the provisioning in 2010 operating year or in the 2011 operating year latest by March 31st 2011.

Adelabu said First Bank decided to make the provisioning in its 2010 operating results to show prudence and to preserve its profitability in the 2011 operating year.

“The decision is to show industry leadership as we are the first bank to make this provisioning. We said it is better to show prudence by making the provisioning in 2010 instead of postponing it.  The implication is that our profitability in 2011 would be higher as it would not be affected by the general provisioning.

“Other banks might have decided to do it later to achieve show high Return on Equity (RoE) and to have enough profit base to pay dividend. First Bank however a rich history of dividend payout has and has proven itself in this regard but now want to achieve consistency in the level of dividend instead the volatility in the amount of dividend paid to shareholders.”

“He said even with the provisioning the bank achieved improved performance in 2010 and confirmed its leadership position of the bank in the industry.

“The bank in 2010 achieved   Return on Equity of 13.8 per cent which is still higher than that of other banks, and if not for the general provisioning it would have been 16 per cent. The bank’s balance sheet also grew to N2.3 trillion from N2.1 trillion while its shareholders funds rose to N340 billion from N311 billion. Our Return on Assets also rose to 2.0 per cent from 0.8 per cent.

He said during the year the bank strengthened its cost of funds by achieving a lower cost of funds than the previous year, a reflection of the banks rich history in sourcing cheap funds through its extensive retail outlets. “Cost of funds dropped to 3.4 per cent from 6.4 per cent in the previous operating year. This means the bank can lend at competitive interest rates and this  would help increase lending and drive up revenue.

The bank, he said,  achieved liquidity ratio of 50.9 per cent, which is higher than the 25 per cent required.  Its capital adequacy ratio also improved to from 15.8 per cent to 20.3 per cent, more than the 10.0 per cent required.

He said the bank not only increased its loan portfolio, it also improved the quality by reducing ratio of non-performing loans to 7.7 per cent from 8.2 per cent in 2009. The bank’s loan portfolio grew to N2.3 trillion from N2.1 trillion.

Adelabu said that though the bank achieved a cost to income ratio of 65 per cent, it is however working to bring this down to about 60 per cent in the current operating year.

The performance of the bank during the year increased its Earnings per share (EPS) to 102 kobo from 17 kobo while the directors have proposed dividend of 60 kobo per share.

“The proposed dividend was informed by the dividend policy of the bank”, Adelabu said. “We have a policy that states the percentage of profit that can be declared has dividend. This is because of the need to strengthen the bank’s capital base through profit retention so that the bank would have enough funds to finance  future expansion instead of going to the market to raise funds all the time’, he said.

Source : http://www.vanguardngr.com