April 21, 2015
Nigeria’s second largest lender, First Bank Plc has passed a new policy implying that it will pay greater attention to short term lending than long term loans this year. This approach was implemented in light of the tendency to have a low ‘regulatory capital’, hence focusing on trade transactions that have typical 90-day cycles may resolve the challenge of keeping a healthy liquidity base.
Bisi Onasanya, the CEO of First Bank, explained that since the lender financed a great number of oil and power projects in 2014, most of which are yet to be repaid, it is necessary that the bank adopts some conservative measures. Also, due to the significant drop in oil prices, most Nigerian banks have had to write-down loans they issued out with a higher dollar benchmark than the current oil price. He said focusing on short term loans will augment for slower growth, expecting to expand by 4 percent this year, from 23 percent in 2014.
In 2014, the company had over N2.6 trillion in loans, making it the top lender in the industry. However, a write-down of a number of loans resulted in a drop of its capital adequacy ratio to 16 percent. The bank, known for paying high dividends on its shares, also had to trim its 2014 year-end payout due to a drop in revenue. It paid out only 10 kobo per share to shareholders.
First Bank has long confirmed its desire to raise capital adequacy. However, weary of the unfavourable capital market, it has reiterated plans to stay clear of borrowing in the short term, as this might dampen investor sentiments. Rather it believes the short term loan approach offers a healthy alternative to the capital market.
Its recent acquisitions, Oasis Insurance and Kakawa Discount House, should also aid in raising revenue from the insurance and investment banking sectors.
Source: Ventures AFRICA