RENCAP: FBNH change in leadership to drive strategic shift

Renaissance Capital has identified a strategic shift in First Bank Holdings, driven by a change in leadership, which they believe is now more shareholder-led compared to its previous Central Bank of Nigeria (CBN)-steered leadership. Analysts at RENCAP point out various risks that could affect the valuation of the group, including corporate governance issues, regulatory challenges from the Central Bank, and potential tax burdens like windfall taxes. Olumide Sole, the Head of Financial Institutions Research at Renaissance Capital Africa, provided insights during a recent interview with CNBC Africa, shedding light on the new direction for First Bank Holdings. First Bank Holdings, as Nigeria's oldest bank, has weathered the storm of a rapidly evolving financial services landscape in the country. While fintech companies are leveraging technology to tap into a younger demographic, First Bank is navigating through leadership changes that are expected to drive a strategic transformation. In April 2021, the CBN intervened in the bank's management, leading to a shift in leadership to address growth concerns. The recent appointment of Mr. Femi Otedola as the group's chairman marks a shift towards a more shareholder-centric leadership approach. One key lesson highlighted by Olumide Sole is the importance of regulatory oversight in the banking sector. He emphasized that banks should not operate in isolation and regulatory compliance is essential to maintain financial stability. With systemic risks in play, effective governance and adherence to regulations are crucial for the long-term success of financial institutions like First Bank Holdings. Analyzing key metrics for the bank, deposit growth has been robust, primarily fueled by customer acquisition and the currency devaluation in Nigeria. Non-performing loans have shown improvement, indicating better risk management practices. The bank's non-banking subsidiaries, including investment banking and insurance services, have demonstrated positive returns, with a strategic decision to divest from certain businesses to strengthen capital reserves. In terms of innovation, First Bank has made strides in digital transactions through initiatives like the First Money agency banking unit. Leveraging POS technology, the bank has seen substantial growth in e-business transactions, particularly post-COVID, where cash restrictions led to a surge in digital payments. Despite trading at a 29% discount to its target price on the Nigerian Exchange Group (NGX), Renaissance Capital recommends a buy rating for the stock, citing strong performance indicators. Looking ahead, post-recapitalization, First Bank Holdings is poised to enhance its earnings capacity, with projections of improved earnings per share for 2024. While dilution may occur post-recapitalization due to increased shares, the bank's focus on enhancing profitability is expected to offset any negative impact on shareholders. Olumide Sole's analysis indicates a positive outlook for the bank's future performance, underpinned by strategic leadership changes and a focus on driving shareholder value.