FBN Holdings Plc: Q3 Profit down significantly on lower Non Interest Revenue

December 7, 2021/CSL Research

Image Credit: FBNH

FBNH released 9M 2021 AUDITED numbers. The group’s profitability ratio worsened in 9M 2021 compared with 9M 2020 due to pressure on Interest Income because of lower yields. Interest Income declined 12.6% y/y in 9M 2021, mainly on the back of a decline in yields on investment securities on FVOCI and Net Loans. Interest Income on investment securities on FVOCI declined by 73.1% y/y, while Interest Income on Net Loans declined by 3.3% y/y. Q/q, however, Interest Income was up 19.9% in Q3 relative to Q2 2021. On the other hand, Interest Expense was down 7.4% y/y but was up 26.3% in Q3 compared with Q2. FBNH’s Interest Expense, like many of its peers, has been gradually increasing in 2021, signifying an uptick in funding cost and a corresponding uptick in yields. Overall, Net Interest Margin (NIM) was down to 4.4% in September 2021 from 6.6% in September 2020. 

Net Fee and Commission Income grew 17.7% y/y but declined marginally in Q3 compared to Q2 (down 1.5%). The y/y growth in Fees and Commission was mainly on the back of a 62% growth in credit related fees, a 50% growth in Letters of credit fees and commissions, a 74.6% growth in Funds transfer and intermediation fees, a 33.3% growth in account maintenance fees and a 118% growth in Brokerage and intermediations. E-banking fees remained resilient, up 21.5% y/y, suggesting increasing transaction volumes. 

9M 2021 Nm

Source: Company, CSL Research. 

Other Income (Foreign Exchange Income, Net Gains on Investment Securities, Net Gains or Loss on Financial Instruments held at FVTPL, Dividend Income, Other Operating Income) was up 17.6% y/y but declined significantly within the quarter, down 94% in Q3. The q/q decline was on the back of a 63% decline in net gains/(losses) from financial instruments at FVTPL. The group also reported sundry income (mainly income from assets realized) of N14.6bn in Q2, which formed the bulk of Other Operating Income compared with a negative N12.1bn reported as Oher Operating Income in Q3.

9M 2021 impairment Charge declined 36.5% y/y to N29.6bn compared with N46.7bn in 9M 2020, bringing 9M annualized Cost of Risk (COR) to 1.5% compared with 2.4% for FY 2020. At the H1 conference call, according to the bank’s management, the covid-related restructured loans are performing. For the power sector, payment has been coming in, and the oil and gas upstream loans began to show improvement at an oil price above US$40. The bank’s management also noted that personal loans are not in default either as many of the bank’s customers (federal and state governments and multinational staff) retained their staff through the covid period. NPL ratio of 7.3% is down from 8.8% in Sept 2020. The highest percentage of the bank’s NPL came from the Agriculture and General commerce sectors. We forecast FY 2021 NPL ratio of 7.0% and cost of risk of 2.5%. 

OPEX increased moderately, up 9.4% y/y but declined 3.0% q/q. The y/y growth coupled with a decline in total operating income (down 2.3% y/y) led to a deterioration in the cost to income ratio (ex-provisions) to 73.5% in 9M 2021 from 65.6% in 9M 2020. We consider the growth in OPEX moderate considering a high inflationary environment and depreciation of the currency. Growth in Other Operating Expenses was the major contributor to OPEX growth, mainly driven by increased regulatory cost (NDIC, AMCON, etc.). 

Pre-tax profit was down 16.4% y/y while Net profit declined 40.2% y/y to N40.8bn mainly due to an additional N13.8bn in profit from discontinued operations in 9M 2020 compared with a negative N60m in 9M 2021. Q/q (Q3 2021 compared with Q2 2021, Pre-tax profit was down 70.8% q/q while Net Profit declined 87.8% q/q. 9M 2021 annualised RoAE comes to 7.2% compared to 13.2% in 9M 2020.

Our target price and rating are being reviewed. Current price: N11.70/s

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