Biggest Nigerian Bank Sees Slower Profit Growth as Oil Falls

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FBN Holdings Plc, Nigeria’s biggest lender by assets, expects profit growth to slow by more than half in 2015 from the pace set last year as a plunge in oil prices and capital curbs weigh on the country’s banks.

The lender forecasts that the 7.7 percent increase in net income in the six months through June will be sustained for the rest of the year, Oyewale Ariyibi, the bank’s finance head, said Tuesday in an interview in Lagos, Nigeria’s commercial capital. “This year, tight monetary policy will be an issue.”

Net income in 2014 rose 17 percent to 82.8 billion naira ($416 million), the bank said in April. Its ability to match that growth is curtailed by a central bank rule forcing lenders to place 31 percent of deposits with the regulator. A slump in government income from oil, the source of about 70 percent of revenue in Africa’s biggest economy, has had a “ripple effect” on banks, Ariyibi said.

Africa’s largest oil producer is confronting a 50 percent slump in prices in the past year that has forced the government to curb spending. The Central Bank of Nigeria increased reserve requirements to reduce the amount of local currency in circulation, helping to check inflation and bolster the naira, which has dropped 19 percent against the dollar in 12 months.

The capital regulations have tied up 641 billion naira of the lender’s funds at the central bank as of June, Ariyibi said.

Small Companies

Profit growth this year may come from loans to small businesses as the bank switches “from lending to multinationals and big companies to focus on commercial and retail banking customers,” where interest margins can be more attractive, Ariyibi said. “In lending to a retail customer against a multinational, there is at least 300 basis points that you can gain,” he said.

The bank also expects the first full-year earnings contributions from its insurance and merchant-banking units. “In 2015, we focus on consolidating and integrating these businesses and to extract value from them,” Ariyibi said.

FBN advanced 1.6 percent to 6.90 naira by the close in Lagos. The stock is down 14 percent this year, compared with a 4.7 percent drop for the Nigerian Stock Exchange Banking 10 Index.

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