Subject: Dividend Suspension and High Oil Exposure Pressure First Holdco’s Valuation Amid Regulatory Scrutiny
Investor sentiment turned sharply negative on First Holdco Plc last week, as the Central Bank of Nigeria's (CBN) directive suspending dividend payments for banks under regulatory forbearance and single obligor breaches triggered broad selloffs across the financial services sector. First Holdco—among those affected—saw its stock fall from a weekly open of N28.20 to close at N26.95, with trading volumes reflecting aggressive repositioning by investors.
Key Points Driving the Market Reaction:
- Dividend Suspension Due to Regulatory Forbearance: The CBN’s move to suspend dividend payments for banks breaching prudential guidelines directly impacts First Holdco, which is currently under regulatory forbearance and in breach of the single obligor limit. This restriction significantly undermines its income attractiveness to yield-focused investors.
- High Oil & Gas Sector Exposure: According to Meristem Securities, First Holdco's oil and gas exposure stands at a concerning 119.55% of capital, the highest among Tier I banks, and far above peers such as Zenith (101.89%) and UBA (39.11%). This overconcentration amplifies credit risk, especially amid FX volatility and sector-specific stress.
- Weak Capital Adequacy and Earnings Buffer: The group’s capital adequacy ratio (CAR) sits at 16.54%, just modestly above regulatory minimums. While its shareholders’ fund of N2.738 trillion places it below key Tier I peers, analysts highlight the need for additional buffers to absorb provisions tied to its Stage 2 loans—many of which stem from FX-denominated facilities in the oil and gas sector.
- Loan Quality and Forbearance Exposure: Analysts estimate that 10–12% of First Holdco’s gross loans are under forbearance, implying an exposure range of N900 billion to N1.1 trillion. These loans, largely classified as Stage 2 under IFRS 9, have not yet defaulted but reflect significant credit deterioration, placing pressure on future provisions and capital.
- FX Devaluation Impact and Single Obligor Breach: The bank attributes its single obligor breach to foreign currency-denominated syndicated loans to two large clients, which ballooned after the naira devalued by over 200% between 2023 and 2024. The company plans to resolve this breach via capital raise efforts in H2 2025.
- Provisioning Risk Remains: Despite First Holdco’s strong earnings-generating capacity, analysts caution that its non-performing loan (NPL) coverage is low, suggesting additional provisioning may be required. This adds another layer of pressure on profitability and capital adequacy, particularly if loan restructuring efforts fall short.
Outlook: First Holdco faces a credibility and capital management test. The combination of dividend suspension, outsized oil and gas exposure, and a regulatory forbearance status has unsettled investors and narrowed its valuation appeal. The company’s ability to successfully complete a capital raise, restructure risk-laden syndicated exposures, and rebuild regulatory buffers will be crucial to restoring investor confidence and normalizing shareholder returns.
Until clearer progress is seen on exiting regulatory forbearance and curing its obligor breach, First Holdco’s stock may remain under pressure, with limited near-term upside due to dampened dividend prospects and increased provisioning risk.
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