In CBN’s Return to Orthodoxy, FirstHoldco Faces $887m Exposure

•GTB, Stanbic clear of forbearance as Zenith, Access Bank, UBA, FCMB face headwinds over Aiteo, Niconde, 9Mobile, Wemco loans 

•NGX banking index falls by 4%

NumeEkegheandKayodeTokede

The decisive return to orthodox monetary policy by the Central Bank of Nigeria (CBN) and its roll out of stringent measures aimed at strengthening banks’ capital buffers and curbing regulatory forbearance abuses are testing the financial resilience of financial institutions, like FirstHoldco, Zenith Bank, UBA, FCMB, and Access Bank, among others.

That was as a report released yesterday by Renaissance Capital, an emerging and frontier market investment bank, titled, “Nigerian Banks: Cash is King,” revealed that FirstHoldCo had significant forbearance exposure of 14 per cent, estimated at $887 million.

Reacting to the development in the banking industry, the Nigerian Exchange Limited (NGX) Banking Index yesterday opened the week on a bearish note, dropping by four per cent to 1,169.74 basis points.

The new CBN directives, which included a temporary suspension of dividend payments, deferral of management bonuses, and a halt on foreign investments, were designed to ensure full provisioning for high-risk exposures and improve cash-based profitability metrics.

The policy had already posed concerns for financial institutions, such as FirstHoldco, with significant forbearance-linked assets.

In a circular dated June 13, 2025, and signed by Director of Banking Supervision, Dr. OlubukolaAkinwunmi, CBN instructed all banks currently under regulatory forbearance to suspend the payment of dividends to shareholders, bonuses to directors and senior executives, and investments in offshore subsidiaries or new foreign ventures.

The move, according to the apex bank, was part of a broader strategy to ensure that banks operating under forbearance supervision strengthened their financial resilience and fully complied with capital adequacy and loan provisioning standards.

CBN emphasised that the restrictions were temporary and will be lifted once key conditions were met, a full exit from regulatory forbearance, and independent verification of capital and provisioning levels as being within acceptable regulatory thresholds.

Some analysts believe CBN’s move was a push to strengthen credit discipline, enhance transparency, and compel banks to clean up their balance sheets ahead of the ongoing recapitalisation exercise.

The genesis was that during the COVID-19 crisis, CBN granted forbearance to the entire banking industry to enable banks withstand the challenge posed by the pandemic.

However, the industry regulator had given a deadline of December 2024 to phase out the policy. This saw some industry players putting pressure on CBN to extend it by another year, but the CBN Governor, Mr. Olayemi Cardoso, maintained that in line with his return to orthodoxy, he would not extend the deadline, which made him to give all operators six months extra, which expires this month.

THISDAY learnt that Cardoso believed banks should not be paying dividends and bonuses to shareholders and directors while carrying forbearance.

Companies, such as Neconde, Aiteo, Oando, 9mobile, and Wempco, had benefited from years of regulatory leniency, despite accumulating non-performing loans (NPLs).

Neconde, a subsidiary of Nestoil Group, Aiteo, Oando, and others, in the oil and gas sector, had some of the highest exposures to banks; with 9mobile in the telecom sector, which had almost gone moribund, as well as Wempco in manufacturing.

THISDAY findings revealed that FirstBank had one of the highest exposures in the industry. The subsidiary of FirstHoldco had two major exposures: firstly, Aiteo, where they had two loans – a $500 million facility and another $300 million, which was a shareholder loan.

Secondly, the bank was also hit by its loan to Dangote Refineries. The Dangote loan though performing was above the Single Obligor Limit (SOL) and was allowed because of the forbearance the Dangote Group got from CBN as a result of its huge strategic national project.

For the oil and gas sector, Neconde Energy had over $3 billion, and Aiteo Energy Resources had over $2 billion.

It was, however, gathered that Oando had since restructured its loans and gone ahead to acquire AGIP, which had improved its prospects. Similarly, the oil and gas company recently announced an increase in its Reserve Based Lending (RBL2) facility to $375 million. The facility refinancing secured was led by the African Export-Import Bank (Afreximbank), with the support of Mercuria, extending the final maturity date of the facility to January 30, 2029.

This upsizing was a result of the company’s progress in deleveraging, having reduced the original $525 million RBL2 facility, signed in 2019, to $100 million by the close of 2024.

9Mobile, which was almost moribund, was a big problem.

Aiteo had restarted production and was beginning to see the green shoots. They were also affected by oil theft and other industry challenges.

Meanwhile, Rencap pointed out that the latest directive by CBN aligned with its view that the treatment of forbearance should shift to profit and loss (P&L) provisions and equity charges.

It added, “We also see this measure as solving a liquidity issue, not simply asset quality, by making cash profits a better gauge of bank health than accounting profits.

“We support the CBN’s orthodox stance, and believe that this more rigid position on enforcement should provide a new policy standard on new directives; too often, the market has expected a flip-flop in policy or enforcement timing.

“The temporary suspension is expected to remain in place until banks have fully provisioned and phased out their regulatory forbearance. As a result, we expect interim and final dividend payments for banks under our coverage with significant exposure to be paused until they have made adequate provisioning for their forbearance exposure.

“Based on our estimates, Zenith Bank, FirstBank and Access have significant forbearance exposures of 23 percent, 14 percent and four percent, respectively, of their gross loan books.”

Rencap stated, “Similarly, in line with our estimates, Fidelity Bank and FCMB, the two top tier-II banks, have forbearance exposures of 10 percent and eight percent of their gross loan books, respectively.

“In contrast, Stanbic and GTCO have zero forbearance exposure in their gross loans, based on our estimates. GTCO adequately provisioned and wrote off its forbearance exposures last year.”

The report also said, “In absolute terms, we estimate regulatory forbearance exposures at $304 million, $887 million, $134 million, $296 million, $282 million, and $1.6 billion for Access, FirstHoldco, FCMB, Fidelity Bank, UBA, and Zenith Bank respectively.

“Based on our forbearance exposure estimates, we believe FirstHoldco, Fidelity Bank and Zenith Bank could breach its SOL due to its estimated forbearance exposure.

“While forbearance exposures are not always tied to a single client, we believe they are predominantly concentrated in loans to a major Oil & Gas counterparty (particularly in the upstream and refinery subsectors).”

According to the report, since dividend pay-outs require actual cash, cash profits provide a more reliable basis for forecasting dividends than accounting profits.

Furthermore, the report pointed out that the forbearances granted by CBN to banks had transitioned from being an asset quality issue to primarily a cash flow constraint.

“Significant growth in accounting profits without a corresponding increase in cash profits will impede banks’ ability to meet day-to-day working capital needs and reward shareholders adequately,” it added.

Rencap said, “Looking ahead to first half 2025, based on our earnings forecasts, GTCO, UBA, and Zenith Bank are expected to report positive cash earnings, while Access and FirstHoldco are projected to remain in negative territory.” 

It said, conversely, Access Bank’s cash profits should improve, but remain negative due to interest expenses paid, which they expected to exceed incurred Interest Expenses by N1.9 trillion.

“Similarly, we anticipate FirstHoldco will report negative cash profits in first half 2025 due to its single-obligor NPL, with an estimated N723.9 billion gap between Interest Income received and earned,” the report added.

The report estimated that dividend payments in the industry would largely resume in 2028.

It stated, “As such, we expect dividend payments henceforth to come from the non-banking subsidiaries of the above-mentioned Groups. Given that majority of these Group’s income is primarily from their banking business; we do not see any substantial dividend payments from their non-banking subsidiaries.

“Given our expectation of an adverse market reaction, these institutions may be forced to issue additional shares at lower valuations to meet regulatory requirements.

“Consequently, we provide our estimates for the projected total shares outstanding upon completion of these banks’ recapitalisation exercises below based on multiple market valuation scenarios and their respective capital shortfalls.”

Commenting on the industry’s high Cash Reserve Ratio (CRR) of 50 per cent, Rencap stated that simultaneously mandating banks to recapitalise to support lending for a $1 trillion economy by 2030, while maintaining CRR at 50 per cent was contradictory.

It said, “While the recapitalisation directive aims to strengthen banks’ capacity to lend, the 50 percent CRR severely restricts their ability to deploy funds, effectively undermining the policy’s intent.

“The feasibility of the $1 trillion GDP target is questionable, given that a core rationale for recapitalisation was to spur credit growth, an outcome now constrained by the CRR’s liquidity drain.

“With CRR at 50 percent and the liquidity ratio at 30 percent, banks are left with only 20 percent of customer deposits available for lending, well below the regulatory Loan-to-Deposit Ratio (LDR) benchmark of 50 percent. “This structural limitation makes it challenging for banks to meet domestic lending targets, even with higher capital buffers.”

In the meantime, NGX Banking Index, yesterday opened the week on a bearish note, dropping by four per cent to 1,169.74 basis points amid investors’ reaction to CBN’s fresh policy on dividend and bonuses pay-outs.

For instance, the stock price of Access Holdings dropped by 8.28 per cent to N20.50 per share, while FCMB Group dipped by 6.57 per cent to close at N9.25 per share.

The stock price of Zenith Bank Plc declined by 6.37 per cent to close trading at N47.00 per share, as First Holdco Plc stock price tumbled by 6.03 per cent to close trading at N26.50 per share.

Similarly, the stock price of UBA was down by 5.67 per cent to N34.10 per share, while Fidelity Bank’s stock price plummeted by 4.94 per cent to close at N18.30 per share.

In addition, Sterling Financial Holdings Company’s stock price depreciated by 4.84 per cent to close at N5.50 per share, as Jaiz Bank’s stock price on NGX declined by 3.72 per cent to close at N3.11 per share.

Vice President of Highcap Securities Limited, Mr. David Adnori, in a chat with THISDAY, stated that investors’ confidence in banking stock would erode. Adnori said investors were investing in the banking stocks because of dividend pay-out.

Chief Research Officer, InvestData Consulting Limited, Mr. Omordion Ambrose, also said the stock market was expected to react to the CBN policy.

“The policy by CBN will send a negative signal to the stock market and it will be temporary,” Ambrose said.

The downward trend in banking stocks impacted the major stock market indicators.

For instance, NGX All-Share Index (NGX ASI) yesterday was down by 170.77 basis points or 0.15 per cent to close at 115,258.77 basis points.

Consequently, market capitalisation declined by N108 billion to close at N72.680 trillion.

Transactions in the shares of Access Holdings led the activity with 92.702 million shares worth N1.905 billion. UBA followed with an account of 91.363 million shares valued at N3.085 billion, while Zenith Bank traded 76.848 million shares valued at N3.556 billion.

 Fidelity Bank traded 49.995 million shares worth N883.988 million, while Guaranty Trust Holding Company (GTCO) traded 40.456 million shares worth N2.849 billion.