By Our Analyst
First Bank is one of the few businesses that are older than the country where it was birthed. Like its geriatric partner called Nigeria, signs of old age have been appearing for some time. Can he learn anything from its industry siblings?
First Bank released its 2017 results recently, posting a profit before tax (PBT) of N57 billion. This lags behind the performances of two of its grandchildren, Zenith and Guaranty Trust Bank (GTB) who in less than 30 years of existence, have become Harvard case studies on how to do it right in a business environment where doing right is a practical equivalence of rocket science. For stakeholders in First Bank, the recent profiles of these two banks are becoming an embarrassment.
Zenith and GTBank seem to have nowhere else to go but up, having mastered the art of sustaining peak performance. Consistently, the two banks have continued to beat previous year’s performance every successive year, the latest being 2017. For the year ended December 31, Zenith posted a PBT of N212 billion while GTB recorded N200 billion. First Bank made N57 billion in the same period, just twice slightly higher than Stanbic IBTC Pension, an institution with a total asset of two of its (First Bank) cosmopolitan branches. Though, First Bank’s 2017 PBT is a 178% increase over the 2016 figure, it was still four times lower than each of its younger counterparts under review. At the current rate, it is not certain that First Bank can regain the level of profitability which had made other players ceded the traditional role of leadership to it in the past, as if it was a birth right.
First Bank’s situation becomes even gloomier when profitability is examined from the standpoint of ratios. For example, Return on Equity was a paltry 8% in 2017 compared to 22% for Zenith and a whopping 34% for GTB. In the same vein, GTB made an average of N740 million from each of its 230 branches in 2017 while Zenith recorded N354 million. First Bank could only generate an average of 53 million from its over 750 branches. Although this analysis may appear too straitjacket when considering the fact that banks also run profit centres from the Head Office (such as corporate banking and transaction banking), the point that First Bank far lags behind in the efficiency metrics cannot be missed.
First Bank’s problem did not start last year. Before the Nigerian second banking revolution following the liberalization of the Nigerian financial system (the Post Structural Adjustment Programme), the bank had given an impression it was ready to swim with the technology tide, launching a wide range of digital initiatives, particularly the Century Two Project. While its arch traditional rival, Union Bank had become stuck in the glory of the past by not modernizing early enough to ward off ferocious challenges from new entrants, First Bank had become button and click prophesying online, real-time as true-to-form business cliché. It also beefed up in motivation, paying mouth-watering salaries that could only be matched by dare devil rivals. So where did present problem come from?
For all its claim to modernity, First Bank is still an anchor for entrenched political interests who see it as the commercial banking alternative to the Central Bank. In 28 years till date, First Bank has had around nine CEOs whereas GTB and Zenith have had only three. The nobody-owns-the-bank status does not give sufficient clout for management independence, a critical requirement in a business highly prone to one-transaction risk.
The clash of competing interests usually provides the ground for poor decisions as what matters most is individual goals rather than business growth. This non-alignment is the basis for crisis flash-points such as high non-performing loans (which presently stand at 26%), frequent management turnover and ultimately, less than desirable results. In the midst of all this, how does First Bank rediscover itself to become the industry’s leading light? There are three things it should do.
Compete, but not with yourself
First Bank prides itself as a financial conglomerate, offering all sorts from commercial banking, asset management, securities trading to wholesale banking. It is the only institution with two or three CBN licenses. But that model, though gargantuan, does not seem to be bringing the desired results. The consequence sometimes is confusion with the companies in the group, though claiming to provide different offerings, but yet competing against themselves. And in any case, what is the effect on the bottom-line? First Bank may just do well by selling its interest in FBN Merchant Bank and some other low-yielding subsidiaries so that it can focus on its core commercial banking business where it has the scale and the capacity to lead. Unfortunately, First bank does not have a rose in its flock, like Stanbic IBTC Pension or Union Homes in the Union Bank of old, both of which make the case for an integrated financial service business.
Secondly, the bank needs to decide on what matters between scale and efficiency. GTB creates a N200 billion on just 250 branches. Which is better: a large farm of low yield of a few hectares of quality harvest? The bank’s over 750-branch network creates an impression of an institution that is at home everywhere Nigerians are. But does the bank needs to be everywhere in Nigeria in an era where technology does so much to make brick and mortal almost irrelevant?
Finally, First Bank needs a management that is built for the long term; it needs a sizable members of its own lifers at the top. The banks that have become reference points for efficiency and performance in Nigeria today seem to be those that are run by top management people who are sold on the concept of the bank right from the beginning of their careers. The bank needs true “First Bankers” who will remodel the bank in a new corporate culture that will on the one change with the trend as environmental conditions change while also developing a unique DNA that can only be nothing but First Bank. The first 120 years may have been glorious for First Bank, the next 20 may not just be that rosy.