Fortis MFB Succumbs to Harsh Operating Climate

Goddy Egene writes that the challenging operating environment has taken a toll on the earnings of Fortis Microfinance Bank

When the Microfinance Policy Regulatory and Supervisory Framework (MPRSF) was launched in 2005 by the federal government , it was meant to address the issue of financing the poor in both urban and rural areas and also financing the Small and Medium Enterprises (SMEs).

Other issues that were to be addressed by MPRSF were poor corporate governance, lack of well-defined operations, restrictive regulatory/supervisory requirements, and weak capital base of existing institutions. A huge gap was identified in the provision of financial services to a large number of active but poor and low income groups, especially in the rural areas as a result of rigidity operations of formal financial institutions in Nigeria.

Hence, the MPRSF was introduced to encourage the establishment of microfinance banks. Since the introduction of the policy, many MFBs have been established. Out of the numerous MFBs, Fortis Microfinance Bank Plc was the second MFB that has had the courage to be listed on the Nigerian Stock Exchange (NSE) after NPF MFB.
The bank was listed on the exchange in 2012 and has been recording growth. However, it has begun to witness declining fortunes in 2015 full year and first quarter of 2016, indicating the harsh operating business environment.

Corporate history

Fortis MFB was licensed by the CBN in 2007 and listed on the NSE as the first private sector led MFB in 2012. The bank has the goal of meeting the high demand for microfinance banking services by providing flexible banking solutions to support the development of entrepreneurship and empowerment of the economically disadvantaged micro, small and medium scale enterprises (MSME) and individual.

Fortis MFB provides a wide range of financial services to a substantial and diversified client base that includes low-end entrepreneurs, the under banked, cooperatives and high-net-worth individuals among others. It runs a viable business model that provides access and financial empowerment to those at the base of the economic pyramid that constitute over 80 per cent of the about 160 million Nigerians and also provide huge returns on investments.
Fortis operates out of 14 strategically located branches and has a growing customer base, made up of Micro, Small and Medium Enterprises (MSMEs), individuals and groups who have benefited from Fortis loans and other value added services.

Financial performance trend

Fortis MFB had an impressive full year financial results in 2014 with a profit after tax (PAT) of N674.512 million, from the N382.903 million it recorded in 2013.
Profit before tax was up by 68.50 per cent from N634.674 million in 2013 to N1.070 billion in 2014, while interest income rose to 22.15 per cent, from N2.045 billion in 2013 to N2.498 billion in 2014.

Maintaining the positive trend, Fortis MFB began 2015 year in a positive trajectory as it reported a 315 per cent growth in its pre-tax profit for the half year ended June 30, 2015.
The firm’s profit before tax (PBT) went up by 315 per cent from N80.493 million in the Q2 of 2014 to N334.608 million in the review period of 2015.

Also, profit after tax (PAT) equally grew by 315 per cent in the second quarter of 2015 with N234.225 million compared to N56.345 million reported in same period of 2014.
Interest income firmed up to N1.304 billion in 2015 from N858 million in 2014, accounting for an increase of 51.98 per cent.
Fortis MFB maintained the tempo in profit reporting 123 per cent growth in PAT for the Q3 ended September 30, 2015. Its net earnings grew to N365.84 million during the period under review, from N164.017 million recorded in 2014, representing an increase of 123 per cent.

Its PBT equally rose 123 per cent to N522.636 billion, from N234.310 billion a year earlier. Interest income also rose to N1.836 billion compared with N1.478 billion the previous year, indicating an increase of 24.22 per cent.
However, just as the market was expecting the bank to end 2015 with higher bottom-line, its fortune began to decline.

Its PAT fell 13.46 per cent to N583.703 million from N674.512 million recorded in 2014. Specifically, the bank recorded total operating income of N1.803 billion in 2015, up from N1.875 billion in 2014. Personnel expenses rose from N377 million to N459 million, while general and administrative expenses jumped from N384.436 million to N416.862 million. Total expenses stood at N921 million in 2015, up from N805.34 million in 2014.Impairment charges rose from N15.450 million to N49.182 million. Consequently, PBT fell by about 18 per cent from N1.07 billion to N882.521 million in 2015. Despite a reduction in income tax expenses from N395 million to N298 million, PAT fell from N674.512 million to N583.703 million in 2015.

Fortis MFB commenced the 2016 with a decline in bottom-line. According to the unaudited results for the first quarter ended March 31, 2016, the financial institution recorded a fall of 55 per cent in PAT to N160.933 million in 2016, from N71.910 million in the corresponding period of 2015.
In all, the bank recorded total operating income of N297.846 million, showing a drop of 31 per cent compared with N431.128 million in 2015. Total expenses reduced from N201.223 million to N195.117 million. However, PBT fell by 55 per cent from N229.904 million to N102.728 million in 2016. Similarly, PAT fell from N161 million to N72 million.

Bright future prospects

No doubt the Q1 result is capable of discouraging investors. But considering the fact that bigger banks that operate in the same environment recorded similar poor performance, Fortis MFB’s fortunes will witness a positive trajectory as soon efforts to turn around economy yield results.

Besides, Fortis MFB is planning ahead to improve its performance. Fortis was last year granted a national microfinance banking licence by the Central Bank of Nigeria.

The bank can now operate as a national microfinance bank with the licence and improve its fortunes returns to stakeholders.
The Chairman of Fortis MFB, Mr. Felix Achibiri, who announced the new status of the bank to the shareholders at the 2nd annual general meeting (AGM) in Abuja, said the bank would replicate its success story in Abuja and in the northern parts of Nigeria in other states of the federation when they launch there.

Fortis MFB is the only microfinance bank in Nigeria to be issued a Mobile Payment license by the apex bank. According to the chairman of the bank, Fortis, from the onset was clear that it would build a world-class bank of Nigerian origin and with the right workforce that places customers at the heart of all its activities.

“With a national banking license Fortis will be driving the CBN’s financial inclusion programme across the country by providing financial services to all the states of the federation. Our success story over the years will be replicated nationwide and we will also through the use of technology bring banking to the door step of all Nigerians particularly those at the base of the economic pyramid who are either underserved, under-banked or out rightly disenfranchised by the conventional financial service providers,” he said.

Speaking during the NSE closing gong ceremony in Lagos recently, Achibiri noted that the bank’s investment arising from the conclusion special placement exercise was a huge vote of confidence in the vision of the bank to be the dominant microfinance bank in Nigeria by reaching out to more under-served communities across the country, especially on the back of the Bank’s recently acquired National Microfinance Bank License.

“In the last eight years, Fortis has majorly funded its growth from seed capital, customers savings and retained earnings, and in doing so, have built one of the fastest growing microfinance institutions in Nigeria,” he said.

He noted that the investment is expected to bring a renewed sense of purpose and additional resources to deliver varied products and services to its esteemed customers and improved value to all stakeholders.
Achibiri added the bank is looking at sourcing for fund through the capital market.