If Capital is the Reply, What Precisely is the Drawback with First Holdco?

BY BLAISE UDUNZE

The Olayemi Cardoso-led Central Bank of Nigeria’s 24-month compliance timeline for the recapitalization of Nigeria’s banking system is about to conclude on March 31, 2026, which is framed as an unavoidable answer to systemic fragility, weak steadiness sheets, and the calls for of a bigger, extra advanced economic system. Greater capital, regulators argue, will produce stronger banks. Although First Financial institution could have met the CBN’s N500 billion minimal requirement, the newest financials from Femi Otedola-led First HoldCo Plc, which is the dad or mum of Nigeria’s oldest industrial financial institution, supply a sobering counterpoint, revealing that capital alone can not remedy structural weak spot, governance failure, or deep-rooted danger administration flaws. If capital is the reply, what precisely is the issue?

What is really astonishing to many is that beneath the headline development in earnings lies a monetary establishment fighting collapsing earnings high quality, surging credit score impairments, risky fair-value exposures, and rising working inefficiencies. First HoldCo’s numbers will not be merely a company-specific disappointment; they’re a mirror reflecting the deeper fault strains inside Nigeria’s monetary system and a warning that recapitalisation, in its present kind, dangers changing into one other beauty reset slightly than a real reform.

On the floor, the topline seems encouraging. The figures confirmed that gross earnings rose by 17.1 p.c to N2.64 trillion within the 9 months to 2025, whereas curiosity revenue surged by over 40 p.c to N2.29 trillion. Figuring it out, buyers, depositors, and analysts perceive that these figures, nonetheless, are largely the product of a high-interest-rate setting pushed by aggressive financial tightening. They replicate repricing, not essentially improved lending high quality or superior balance-sheet power. In an economic system below pressure, rising curiosity revenue typically alerts the switch of macroeconomic stress from debtors to banks, slightly than sustainable development.

This turns into evident as soon as consideration shifts from revenues to profitability. The efficiency disclosed that revenue earlier than tax declined by 7.3 p.c to N566.5 billion, whereas revenue after tax fell practically 13 p.c to N458 billion. Earnings per share dropped by a steep 27.7 p.c, a sharper decline than headline revenue suggests, pointing to dilution pressures and diminished worth accruing to shareholders. Extra placing nonetheless is the full-year image, the place revenue after tax from persevering with operations collapsed by about 92 p.c, plunging to N52.7 billion from N663.5 billion within the prior yr. Such a dramatic fall can’t be defined by non permanent volatility; it’s the consequence of long-suppressed dangers lastly surfacing.

Essentially the most damaging of those dangers is asset high quality. Essentially the most vital determine is the impairment expenses that rose by practically 69 p.c within the 9 months to N288.9 billion, and by over 75 p.c on a full-year foundation to N748 billion, and invariably, these numbers inform a narrative of debtors buckling below FX publicity, weak money flows, and a deteriorating working setting. In addition they increase uncomfortable questions on credit score underwriting requirements, focus danger, and the effectiveness of inner danger controls in earlier lending cycles. After impairments, a lot of the profit from greater curiosity revenue evaporated, exposing the fragility of earnings constructed on burdened credit score.

Compounding this weak spot was a pointy reversal in fair-value accounting. First HoldCo recorded a internet lack of N87 billion on monetary devices measured at honest worth, a stark distinction to the N549 billion achieve recorded a yr earlier. Resulting from this final result, bigger chunks of shareholders’ worth had been worn out as a result of this single swing accounted for a destructive variance of over N636 billion year-on-year.

The episode highlights a harmful dependence on market revaluations and FX-driven positive aspects to prop up earnings, as seen that the second circumstances flip, paper earnings vanish simply as rapidly, elevating questions in regards to the transparency, sustainability and financial substance of reported outcomes.

Non-interest revenue offered little cushion. Within the 9 months to 2025, it declined by 44.5 p.c, falling from N618.7 billion to N343.7 billion. Whereas internet charges and fee revenue rose by about 25 p.c, the rise was too small to offset the collapse in different revenue strains. The result’s a income base that’s slim, risky, and overly uncovered to market swings. Recapitalising banks with out addressing this lack of revenue diversification merely amplifies vulnerability.

On the similar time, working prices surged. Working bills climbed by practically 40 p.c to N942.7 billion, whereas different working bills jumped over 43 p.c on a full-year foundation. Inflation, FX depreciation, power prices, and expertise spending all performed a task, however the deeper concern is effectivity. Prices are rising far sooner than sustainable revenue, eroding margins and weakening inner capital technology at exactly the second banks are being requested to shore up capital buffers. Injecting recent capital into establishments with damaged value buildings doesn’t resolve inefficiency; it merely postpones the inevitable days.

These monetary stresses revive longstanding considerations about governance and danger tradition in Nigeria’s banking system. Massive impairment expenses and valuation reversals don’t emerge in a single day. They accumulate by way of years of weak credit score governance, extreme sector and obligor focus, insider-related exposures, insufficient stress testing, and regulatory forbearance. Recapitalisation doesn’t reply an important questions: who will get credit score, how dangers are authorised, how boards train oversight, and whether or not administration is really accountable. With out reform in these areas, extra capital merely gives a thicker cushion for future losses.

International alternate danger stays the system’s most harmful and least resolved fault line. Forex devaluation inflates asset values and boosts curiosity revenue on paper, whereas concurrently crushing debtors with FX-denominated obligations. Banks could e-book translation or revaluation positive aspects whilst credit score high quality deteriorates beneath the floor. This contradiction fuels earnings volatility and undermines confidence in monetary reporting. A stronger capital base doesn’t neutralise FX mismatch danger; solely disciplined danger administration, credible macro coverage, and clear reporting can.

Maybe most troubling is what First HoldCo’s outcomes suggest about regulatory credibility. Most of the impairments and valuation losses replicate dangers that had been seen lengthy earlier than they crystallised within the revenue assertion. When losses arrive immediately and in clusters, considerations from completely different quarters are raised and markets start to query whether or not supervision is proactive or merely reactive. Recapitalisation with out restoring belief in regulatory oversight dangers being interpreted as an admission that deeper issues stay unaddressed and by extension, this erodes belief within the system and a stronger banking sector should even be a fairer and extra accountable one.

Nigeria has travelled this street earlier than. Greater banks and better capital thresholds have beforehand delivered reassuring headlines, just for acquainted weaknesses to resurface in new kinds. First HoldCo’s numbers show that capital adequacy, whereas mandatory, is much from adequate. With out the CBN confronting governance failures, asset high quality deterioration, focus danger, FX publicity, transparency gaps, and weak danger tradition, recapitalisation dangers will change into one other train in delay slightly than reform.

The uncomfortable reality is that actual stability requires greater than recent fairness. It calls for sincere loss recognition, credible monetary reporting, disciplined credit score practices, diversified revenue streams, and regulators keen to implement requirements persistently. Till these lacking items are addressed, recapitalisation will stay what it too typically has been in Nigeria’s monetary historical past, as a bigger buffer for a similar previous issues, and a brief consolation masking unresolved fragilities.

Blaise, a journalist and PR skilled, writes from Lagos, may be reached by way of: blaise.udunze@gmail.com