FBN Holdings: Growth in customers loan thrust interest income, PBT, amid increase in MPR by CBN
By Philemon Adedeji
First Bank Holding of Nigeria (FBNH), in its unaudited financial results for the period ended September 30th, 2022, submitted to the Nigerian Exchange Limited (NGX), saw its loan and advances increase significantly that it impacted on interest rate and profit generated in the period under review.
Specifically, income from loans and advances to customers grew by 47.0 per cent Year-on-Year to N270.71 billion in nine months of 2022 from N184.20 billion in nine months of 2021 supported by the HoldCo’s risk asset creation during the period, evidenced by the 24.9 per cent YTD rise in loans and advances to its customers to N3.60 trillion in nine months of 2022 from N2.88 trillion in FY 2021.
Interest income grew by 42.4 per cent Y-o-Y to N370.36 billion in nine months of 2022 from N260.12 billion in nine months of 2021, as all contributory lines save for the income from loans and advances to banks depreciated by 19.9 per cent year -on-year to N19.21 billion in nine months of 2022 from N23.98 billion in nine months of 2021.
Likewise, income from investment securities increased by 54.9 per cent y/y to N80.45 billion in nine months of 2022 from N51.94 billion in nine months of 2021, despite 4.6 per cent Year -to-Date decline in the bank’s investment securities to N2.89 trillion. We attribute the increase in the income from investment securities to the attractive yields in the fixed-income market.
On the back of the impressive growth recorded in the topline of the results, the group Profit Before Tax (PBT) recorded another strong growth of 99.3 per cent Y-o-Y to N105.49 billion in nine months of 2022 from N52.9 billion in nine months of the corresponding period, while Profit after tax (PAT) rose significantly by 123.6 per cent Y-o-Y to N91.2 billion in nine months of 2022 from N40.8 billion achieved in the preceding year.
The growth in profits can be attributable to a double-digit increase in gross earnings and interest income.
The analysis of the results revealed that the group gross earnings of N432.6 billion recorded in nine months of 2021 to N562.23 billion recorded in the comparable period of 2022, First Bank Holding of Nigeria has recorded a 26.7 per cent growth in gross earnings as of end of September 2022.
Further down, Operating Expenses (OPEX), increased further by 15.2 Y-o-Y to N264.32 billion from N229.5 billion accounted in nine months of 2021, driven by the increase in regulatory costs – deposit insurance premium 336.9 per cent y/y to N10.34 billion from N2.37 billion in the corresponding period.
AMCON levy increased by 29.2 per cent y/y to N59.30 billion in third quarter of 2022 from N45.9 billion in third quarter of 202, While personnel expenses grew significantly by 7.0 per cent y/y to N84.91 billion from N79.32 billion in nine months of 2021.
Given the faster increase in operating income relative to OPEX, the cost-to-income ratio (ex-LLE) settled lower at 71.5 per cent in nine of 2022 from 81.3 per cent in the preceding year.
The HoldCo’s non-interest income (NII) increased marginally by 1.8 per cent y/y to N156.99 billion from N154.6 billion achieved in the preceding year, aided by the gains from other income which rose by 32.1 Y-o-Y to N15.03 billion in nine months of 2022 from N11.38 billion in nine months of 2021, while fees and commission surged by 5.9 per cent y/y to N91.00 billion from N85.90 billion in nine months of 2021.
However, on the flip side, the lower income generated from FX (-63.9 per cent y/y to N2.14 billion) and investment securities declined by 4.4 per cent year -on-year y/y to N48.83 billion in nine months of 2022 from N57.08 billion in nine months of 2021, trading slowed the growth in non-interest income.
Consequently, the operating income grew by 31.0 per cent Year-on-Year to N369.82 billion in nine months of 2022 from N282.39 in the corresponding period.
Cash and cash equivalents reported by the group appreciated by 35.2 per cent to N322.59 billion in nine months of 2022 from N238.68 billion in the prior-year.
As the Holdings reported N3.6 trillion net customer loans & advances as of September 30, 2022 from N2.88 trillion in 2021, customers deposits rose by 12.8 per cent (Y-o-Y) to N6.6 trillion as of September 30, 2022 from N5.85 trillion reported in 2021 financial year.
Earnings per share (EPS) recorded during the period under review gained 124.5 per cent from 112 Kobo as of end of September 2021 to 251 Kobo as of end of September 2022.
Executive Vice President of Highcap Securities Limited, David Andori said FBNH Q3 2022 performance is spectacular. It indicates that the bank has overcome it’s bad loans drag. Write back of recoveries may have propelled this extraordinary performance
Cordros Research Analysts said, FBNH’s performance was impressive and aligned with our expectations. We like that the HoldCo is paying attention to its cost management amid inflationary pressures. Although we view the slower growth in NII as a red flag, which may weaken earnings in Q4-22, we will get further clarity from management during the conference call later today. That said, we remain optimistic that the HoldCo can maintain the pace of growth recorded in the year so far, which should lead to the sustenance of the strong performance from the prior year. Our estimates are under review.
PROFITABILITY RATIOS
From the analysis, First Bank Holding of Nigeria recorded profitability for the third quarter (Q3) results ended September 30, 2022, However, when compare with the corresponding year results, almost all the parameters seen on upward performance.
Firstly, Post tax return on average appreciating to 13.7 per cent in nine months of 2022 from 7.2 per cent in nine months of 2021. As post return on average a assets gained 1.3 per cent in nine months of 2022 from 0.7 per cent in nine months of 2021, While Net interest margin surge by 5.4 per cent in nine months of 2022 from 4.4 per cent in nine months of 2021.
The Cost of funds increased by 2.1 per cent in nine months of 2022 from 1.9 per cent in nine months of 2021.
ANALYSIS ON THE BALANCE SHEET
In the unaudited results, First Bank Holding of Nigeria recorded strong total assets, the group total assets gained a 10.3 per cent to N9,852.82 trillion in nine months of 2022 from N8,932.37 trillion achieved in 2021 audited results and accounts for the period ended December 31, 2021.
Meanwhile, Total equities grew a bit by 1.5 per cent to N893.4 billion in nine months of 2022 from N879.9 billion reported as of end of December 2021.
In addition, Total liabilities deployed for the period increased by 10 per cent to N8.859 trillion in nine months of 2022 from N8.052 trillion accounted in full year 2021.
First Bank of Nigeria Limited (FirstBank) is the premier bank in West Africa with its impact woven into the fabric of society. The Bank has been sustaining its development-oriented services for over 128 years as the region’s foremost financial inclusion services provider. FirstBank offers a comprehensive range of retail and corporate financial services through more than 800 branches and over 190,000 Agent Banking locations to over 36 million customer accounts.
As a national icon and an international player, FirstBank is one of the most enduring financial services brands in Africa with international footprints extending through its subsidiaries, FBN Bank (UK) Limited in London and Paris, FBN in the Republic of Congo, Ghana, The Gambia, Guinea, Sierra-Leone and Senegal, as well as a Representative Office in Beijing.
FirstBank has been nimble at promoting a digital economy in Africa and has issued over 12 million cards, the first bank to achieve such milestone in Nigeria. FirstBank’s financial inclusion and cashless transaction drive have resulted in over 13.9 million users on its USSD banking service through the nationally acclaimed *894# banking service and over 6 million users on its FirstMobile App, which was awarded the African Innovative Banking Product of the Year 2021 by African Leadership Magazine Awards.
Since its establishment in 1894, FirstBank has consistently built relationships with customers, focusing on the fundamentals of good corporate governance, strong liquidity, optimised risk management and leadership. Over the years, the Bank has led the financing of private investment in infrastructure development in the Nigerian economy by playing key roles in the Federal Government’s privatisation and commercialisation schemes.
Commenting on the nine months results, the Group Managing Director, FBN Holdings, Mr. Nnamdi Okonkwo in a statement said, “FBNHoldings has again in Q3 2022 delivered a stellar performance, growing sustainable income from our core businesses. This is a testament to the success of our focus on carefully growing the business and driving profitability.
“As a result, Gross earnings grew 26.6per cent y-o-y to N546.2 billion, while profit before tax doubled y-o-y to N105.5 billion. I am particularly delighted by the significant improvement in our credit risk portfolio.
“Specifically, the NPL ratio closed at 4.7 per cent within the regulatory threshold of five per cent, while the coverage ratio increased to 75.1per cent from 62.2per cent in FY 2021.
“Furthermore, during the period under review, in attestation of the progress made by the Group, Fitch upgraded the credit ratings of FBNHoldings and FirstBank to ‘B’ with a Stable Outlook.
“Value creation remains our overarching objective as we continue to leverage the strengths of our unique brand and heritage to optimise our diverse business portfolio.
He added that, “We are confident of making further progress, with the capacity to generate sustainable performance that delivers superior returns to all our stakeholders.”
The banking subsidiary also showed impressive performance in period as Profit before tax moved to N96.4 billion in nine months of 2022, up 119.1 per cent y-o-y from N44 billion reported in nine months of 2021, while Profit After Tax closed nine months of 2022 at N85.7 billion, representing an increase of 142.1 per cent from N35.4 billion reported in nine months of 2021.
According to the Chief Executive Officer of First Bank of Nigeria Limited (Commercial Banking Group), Dr Adesola Adeduntan, “The performance of the Commercial Banking Group for the nine months ended September 30, 2022, has again shown that the Group is making progress in the pursuit of its ‘Quantum Profitability Leap’ agenda. The improved profitability during the period under review further reinforces the Bank’s commitment to its growth aspirations despite the challenging market conditions.
“Our gross earnings are up 27.5per cent y-o-y to N512.9 billion, and net interest income up 55.7per cent y-o-y to N248.5 billion respectively.
“On the back of the impressive growth recorded in our top line, our Profit Before Tax recorded another strong growth of 119.1 per cent y-o-y to N96.4 billion, whilst Profit After Tax also grew impressively by 142.1 per cent y-o-y to N85.7 billion as the Bank continues to reap the benefits of the changes to our business model in addition to revamping of our risk management and control architecture.”
He added that, “We continue to record progress in driving down our non-performing loan ratio, which has now come down to 4.86 per cent at the end of the third quarter, within regulatory limit of 5 per cent. This is the first time since 2015 that we would be within the regulatory limit, and we achieved this ahead of our initial target of Q4 2022.
“In further testament to the ongoing turnaround and repositioning of the Parent and Banking Group, Fitch, following the conclusion of their review during the quarter, announced the upgrade of FBNHoldings and FirstBank’s Long-Term Issuer Default Ratings (IDRs) to ‘B’ from ‘B-’, with Outlook Stable. This has aligned our credit rating to our Tier 1 peers and the sovereign and has further positioned the Group for more market opportunities.
“We remain confident that as we go into Q4 2022 and plan for the new year, we will continue to strengthen our franchise capabilities and offerings across all our markets, not only to withstand the current headwinds but also continue to deliver top-end value-adding products and services to our esteemed customers and other stakeholders.”
