First Bank’s Rising Loan Losses Is About To Spell Doom For Its Balance Sheet - Business -

FBN Holding Plc (FBHN) is on dangerous grounds as Non Performing Loans (NPLs) spiked in the half year 2015 period. The high level of NPLs will continue to exert strong pressure on FBHN balance sheet, with possible effect on credit extension or loans to customers. Nairametrics had reported earlier that the largest lender by assets in Africa’s largest economy may have loan growth stunted as headwinds heighten. This was confirmed in the most recent quarter as loans and advances fell 4.3 percent year to date to N2.1 trillion. FBN Holdings NPL rose to the highest in 2 years as it hit 4.10 percent in the half year of 2015, the most recent figure. This compares with 3 percent in the H1 2014 period. ICT, Oil and gas sectors lead bad loan surge The bank attributed the spiraling ratio of NPLs to information and communication, the oil and gas and personal & professional sectors. Consequently, provision made on impaired assets increased by 239.90 percent to N22.58 billion in half year 2015, from N6.66 billion in 2014. Simply put, the lender’s continuous provisions for bad loans are swelling thus hurting and slowing profit. Of the N87.4 billion bad loans or NPL exposure, information and telecommunication had the highest exposure rate with 29.70 percent, followed by oil and gas downstream, 12.3 percent, manufacturing 11.50 percent, personnel and professional 10.80 percent, general 10.60 percent and oil and gas services 10.50 percent. Despite the harsh operating environment with its inherent regulatory headwinds such as the harmonization of the cash reserve ratio and the devaluation of the currency, we in Nairametrics believe FBHN has significant room to improve efficiency. Recently, some banks have published lists of delinquent debtors including FBHN We believe these banks are chasing after dead assets as most of the debtors or companies affected are moribund. One such company is STARCOMMS PLC a telecommunications giant that got wound up five years ago. STARCOMMs owes FBHN as much as N5.49 billion. “Though management was vague and largely attributed the markedly higher cost of risk (CoR) guidance to its raising of collective impairments on the oil and gas upstream book, we think it is proactively raising collective impairments on its exposure to Atlantic Energy ($400mn) and other potentially troublesome assets in the O&G book. We assume it gets classified as an NPL, which raises our FY15 NPL ratio to 7% from 4% previously vs. management’s 5% guidance,” said analysts at Renaissance Capital, an investment firm in a recent report on FBHN.