By Omoh Gabriel, Business Editor
First Inland Bank Plc is an amalgam of four erstwhile banks that existed in clearly identifiable regional and market niche before the just concluded consolidation exercise in the Nigerian banking sector. They include First Atlantic, Inland, NUB International and IMB International Banks. While First Atlantic and IMB International Banks were firmly rooted in the southern part of Nigeria, NUB International and Inland Banks showed enormous strength in the North. Beside First Atlantic Bank had its operations deeply rooted in the technological space. Within a short period of its transformation from the ashes of Comet Merchant Bank, it launched a series of exotic e-banking products that took the industry by storm. IMB International Bank had a rich history as one of the earliest wholesale institutions n the market. At a time it was citadel of some sort in the Nigerian banking industry where bankers with extraordinary corporate finance skills were churned out. Not surprisingly it has produced about the largest number of CEO’s in the industry. The bank was very close to the energy sector. NUB International came with a rich cooperative banking background with substantial public sector. But on its recapitalisation in 2000, it transformed to the corporate sector especially of the Northern market.
Inland Bank likewise had the imprimateur of government support at its early stages having been incorporated by the Bauchi State government. Like NUB, it was later privatised and had to chart as independent course for itself in the corporate and consumer banking sectors under professional management. Competitively, in fact, it did not restrict its network to its original but spread reasonably to all parts of the country.
It is with this kind of pedigree that the four institutions came together to became First Inland Bank.
Naturally, the bank required time to handle the challenges of integration and is gradually emerging as a power-house in the area of development of innovative e-enabled products. This is not surprising to industry watchers.
The key legacy bank in this consolidation РFirst Atlantic Bank carved a niche in the electronic product market. In fact, it popularised the SMS mobile banking with its flagship product called Flash-me-cash which was particularly popular among the younger generation. Hence, within a period less than one year, First Inland Bank formulated repackaged about 11 products grouped into two lines РLife style and e-serve products. The later includes the enriched flash-me-cash, internet payment solution and black card. Under the life style lines are Leaders Education Account Plan (LEAP), All Purpose Investment Master Plan (AIM), First Inland Savings Account (FINSAVE), Naira Account, Extralease, Esteem, Esteem Plus and Maxicash. It is perhaps only natural to expect these products to be offered from all branches of the bank under a robust technological platform. It also recently launched an innovative payment solution called DSTV subscription card. After consolidation, the bank’s total branch network was 134, (146 presently) however due to its heavy reliance of technology to deliver its products, the bank insists about 20 million handsets and laptops of clients actually constitute its branch network.
The bank intends to leverage on this vast network, confidence and goodwill of its loyal customers to grow faster and consolidate its position as one of the top 1000 banks in the world.
In fact, following its consolidation, it in 2006 launched an ambitious 3-year medium term plan aimed to also consolidate its place among the top ten in the Nigerian banking industry. Apart from aggressive branch and channel expansion, it intends to grow asset base to N3450 billion by 2009 from the closing of N132 billion (including contingencies) as at February 2006. By October 2006, according to un-audited interim figures from the bank, balance sheet size had grown to N177 billion. Part of the strategy adopted by First Inland Bank to achieve aggressive growth in the next few years is establishment of subsidiaries, through which a lot of cross selling activities expected to generate increase business volume. Some of the subsidiaries which resulted from the integration of existing subsidiaries and units of the legacy banks includes First Inland Capital Market, First Inland Online, First Inland Mortgage, First Inland Insurance and First Inland Pension Funds. As at the time of this review, some of these subsidiaries are yet to either finalise regulating approval or resume operations.
Earning a Profitability Performance
During the period under review First Inland Bank, like several others faced enormous challenges related to integration of people, processes, products and technology. This took some sail of the wind of business expansion plans envisaged. According to interim figures for eight months period of October 2006 recently released by the bank, gross earning was about N10.31 billion which was substantially below projections made in the merger scheme.
Even when annualised this is perhaps equivalent to annual earning of N15.47 billion. However, for the 2006 financial year, the bank had estimated a gross-earnings of N21.2 billion for the post-merger entity with 71% expected from interest bearing sources. But interest income account for 61% of actual amount which though is not inconsistent with typical industry levels.
This resulted from the inability of the bank to grow risk assets as aggressively as envisaged coupled with decline in market rates.
Although management did reasonably well in controlling the rate of growth in expenses, the slow growth in the topline depressed our proxy quantitative measures of lost and earnings efficiency to 11% and 8.3 respectively during the first eight months of the period ended October 2006.
This resulted in a profit after tax of N109 billion for the period. On annualised basis, this translates to N1.64 billion or about 17k per share and 6.0% return on average equity. Although this performance reflects relative success in surmounting the challenge of the first post-consolidation year, it was certainly below the promise made during the merger process to investors.
Capitalisation and Margin of Safety
In the process of consolidation, First Atlantic and NUB International made private placements that met with reasonable success. These new cash inflows went to great length in assisting the merger process and also enabled the group meet the new minimum capital requirement. By the beginning of 2006 therefore, the new First Inland Bank started with shareholders fund of N26.48 billion, although the bank had anticipated a shareholders fund fo N46.16 billion.
By October 2006, the fund grew slightly to N28.27 billion as a result of profit generated during the period. At the beginning, this translated to 28% of adjusted Risk Weighted Assets. Though this relative measure of safety declined marginally to 25% by October, it remained well above the recommended minimum ratio of 10%. According to analysts, the bank still has sufficient latitude to expand the scope of its business. This is however without prejudice to any desire on the part of the bank to further raise funds in the near term or position itself in a better competitive situation in the market.
Quality of Assets and Liabilities
Like most banks involved in the last consolidation exercise, First Inland Bank busied itself in the last 12 months with integration issues, and this includes issues relating to asset and liability portfolios. By the end of February 2006, that is about 2 months in to the merger, the bank’s liquidity holding was so low relative to total assets at 30% but adjusted liquidity ratio was modest at 48%. By the end of October, the latter decreased to 46% while the former increased to 44%. These figures are higher but appeared too close to the minimum threshold of specified liquidity ratio of 40%.
But the overall picture of liquidity quality at the end of the period appeared slightly better than the beginning and this arose largely from a major reconstruction of the portfolio to accommodate more riskless assets and clean up the account. In fact, ratio of risk weighted assets to total assets plus contingencies responded accordingly by declining from 72% to 63% – while ratio of loan facilities to total assets declined from 42% to 35%. Although the bank in the process had to forego potential earnings but it resulted in a marginally better quality portfolio at the end of the period.
Without doubt assurance of quality is necessary to provide the needed confidence to expand business in a manner that would make for sustainable earnings performance.
