Mr. UK Eke
Group Managing Director
FBN Holdings Plc
FBN Holdings Plc has rreleased its FY-17 financial result showing gross earnings (+2.27%) grew during the period to NGN595.02 billion, coming only 1.45% above our estimate.
PBT and PAT recorded upturns of 147.63% and 178.78% to NGN56.83 billion and NGN47.79 billion respectively, falling short of our expectation by 13.80% and 11.27% and Bloomberg’s polled estimates by 17.20% and 14.96% respectively.
According to Cordros Capital, the uptick in Gross earnings was buoyed by growth in interest income (+15.87% to N469.59 billion), and fee and commission income (+4.33% to NGN74.45 billion) – both constituting 91% of Gross earnings. Notably, net insurance premium also grew by 1.72% to NGN10.23 billion.
The rise in interest income was driven by improvement in interest earnings on investment securities (+50.22% to NGN173.29 billion) and loans and advances to customers (+6.25% to NGN288.59 billion), which muted the 57.92% decline in interest on loans to banks (NGN7.71 billion). Interestingly, total customers loan book decreased by 3.97% to NGN2 trillion, while loans to banks surged 67% to NG742.93 billion.
The interest expense also increased by 36.92% to NGN138.06 billion in the year — much faster than the 10.23% rise in interest bearing liabilities (IBL) to NGN4.23 trillion – indicative of a more expensive mix in the IBLs. This can be largely attributable to the 32.87% increase in expensive borrowings (9.95% of total IBL: NGN420.92 billion), as against the slower rise in total deposits (90.05% of total IBL: NGN3.81trillion) by 8.19%. As a result, the cost of fund increased by 63 bps to 3.42%.
Expansion in our computed yield on asset for the period by 25 bps to 12.03%, together with the 63 bps increase in cost of fund, translated in the 30 bps dip in NIM to 8.40%.
Meanwhile, significant decline in forex gains by 76.36% to NGN21.06 billion – owing to the 83.16% drop in revaluation gains on the Group’s long forex position – offset the growth in net fee and commission (+3.40%), and the significant upturn in profit on financial instruments at fair value through profit or loss; causing a 34.36% decline in NIR to NGN103.08 billion.
Provision for loan losses recorded its first y/y decline since 2012 (-67.64% to NGN12.30 billion), contracting by 33.45% to NGN150.42 billion. Accordingly, the cost of risk dropped 272 bps to 8.13%. The growth in total loans and advances by 8.52% NGN2.74 trillion and a slower pace of increase in deposits by 8.19% (vs. +12.99% in 2016FY) NGN3.81 trillion, translated to the 22 bps increase in the loan-to-deposit ratio to 72.05%.
The Group’s total opex grew by 7.73% to NGN238.02 billion (slower than the average inflation rate during the year), following a 10.39% and 84.52% rise in other operating expenses and insurance claims respectively. Accordingly, the higher opex, coupled with the 5.34% decline in operating income (NGN444.84 billion) drove the rise in cost-to-income ratio by 649 bps to 53.51%.
The impressive pre and post-tax profits reported benefitted from the low bases of 2015 and 2016 which were dragged by high impairment charges. The lower effective tax rate of 15.91% (vs 2016: 25.31%) also aided growth in the bottom line.
Performance in Q4-17 was also broadly positive, compared to the same period last year, as Gross earnings, PBT and PAT grew by 29.23%, 110.57%, and 142.22% to NGN156.09 billion, NGN1.39 billion, and NGN1.95 billion respectively. Quarter-on-quarter, however, PBT and PAT dropped by 92.97% and 88.10% respectively.
Net interest income (+9.49% y/y; -14.49% q/q) recorded positive growth, with both interest income (+21.78% y/y, -8.24% q/q) and interest expense (+59.91% y/y; +8.66% q/q) posting upticks. Growth in net gain on investment securities (+119.02% y/y; +76.97% q/q) and forex income (+209.93% y/y and +2502% q/q), supported the positive performance in NIR (+80.55% y/y, +78.93% q/q).
Loan impairment charges (+5.76% y/y; +50.19% q/q) and total opex (+7.97% y/y; 6.65% q/q) in the quarter rose to NGN52.84 billion (5.76% higher than our estimate) and NGN62.67 billion (7.97% higher than we expected) respectively.