Fair value gains multiply FBN Holdings’ profit to N187bn

FBN Holdings Plc reaped an unexpected harvest of almost N232 billion from fair value gain on financial instruments in the second quarter – which multiplied group-after-tax profit close to three and a third times to a record N187 billion in half the year.

The fair value gain in the second quarter is a marked change of direction from a net loss on financial instruments of N3.5 billion in the same quarter last year.

The gain also overwrote a net loss on financial instruments of N2 billion in the first quarter of the current financial year and produced a net gain of close to N230 billion for the bank in half a year.

The bank’s half-year unaudited financial report at the end of June 2023 shows major reinforcement of its operating momentum from a tripod of major asset expansion, increased revenue yield, and profit margin enhancement.

The bank has more than remedied its last year’s records of sharp revenue slowdown and profit drop in half-year – beating the full-year profit of N136 billion in 2022 with the second quarter profit alone.

The bank generated N137 billion after-tax profit in the second quarter, more than five and half times the corresponding figure of N24 billion last year and more than 73 percent of the closing profit figure at the half year.

The gain from financial instruments provided a shield for the bank against three major rising costs that could have dried up revenue in the second quarter.

The major rising costs in the quarter are led by a foreign exchange loss of more than N101 billion – a plunge from an exchange gain of N10.8 billion in the same quarter in 2022. This has worsened a drop of over 47 percent in foreign exchange income to N3 billion in the first quarter.

This is followed by a net impairment charge on credit losses, which jumped four times from N10.4 billion to N40.7 billion over the same period.

Also, interest expenses for the second quarter more than doubled at 112 percent from N36.8 billion in the same period last year to over N78 billion. This is against an increase of 74 percent in interest earnings over the same period.

Rising interest and loan loss expenses in the second quarter ate deep into interest income and limited the increase in net interest income after loan impairment charges to 21.6 percent to N84.7 billion for the quarter.

The inflow from net fair value gain on financial instruments however changed the reading for the bank, multiplying operating profit for the quarter more than five times to stand at roughly N150 billion.

It represents a critical change factor for the bank from a drop of 28 percent in the income line to N38.6 billion at the end of 2022 and from a plunge from N15 billion to a loss of N2 billion in the first quarter.

The impressive second-quarter numbers have quickened the bank’s promising first-quarter results, setting the pace for an outstanding year.

Gross earnings have sped up from a 44 percent increase to nearly N260 billion in the first quarter to about 83 percent leap to over N656 billion at the half year. This is powered by a top record expansion of N3.6 trillion in asset base in six months – which has enlarged the size of the balance sheet to over N14 trillion.

Also, group after-tax profit has surged forward from a 54 percent rise to N50 billion in the first quarter to a 231 percent jump to close at over N187 billion in the half year.

The challenges for the bank remain in respect of the rapidly growing cost of funds and loan impairment charges as well as huge exchange losses that are consuming growing proportions of revenue.

At the half year, interest expenses nearly doubled at 98.7 percent to stand at almost N146 billion, beating an increase of 69 percent in interest income. Credit losses have extended from the 93 percent jump to N17 billion in the first quarter to over 165 percent surge to N57.6 billion at the half year.

FBN Holdings closed half-year operations with earnings per share of N5.19, up from N1.55 per share in the same period last year.