Riding on strength of its huge assets base and franchise, FBN Holdings Plc remained on the stable path for the nine months ending September 30, 2016, despite the macroeconomic headwinds, writes Goddy Egene
The stock market was last week awash with financial results for the nine months ended September 30, 2016. FBN Holdings Plc was among the companies that submitted their results. In line with expectations of that the challenging operating environment would impact negatively on most companies, some recorded outright losses, while others ended the period with improved bottom-lines. Although FBN Holdings recorded a marginal decline in profit before tax (PBT), it recorded growth in revenue, indicating stability in its performance.
FBN Holdings posted gross earnings of N417.3 billion, up by 7.0 per cent from N390 billion in 2015. Net-interest income improved by 5.2percent to N202.9 billion, from N192.9 billion in 2015, driven by a 38.4 per cent reduction in interest expense on customers’ deposits to N56.7 billion.
Non-interest income increased by 56.5 per cent to N131.0 billion, up from N83.7 billion. The increase in non-interest income was driven largely by the foreign exchange translation gain as well as fees and commission income. Foreign exchange income in the period increased to N68.4 billion, from N22.5 billion.
However, net impairment charge on credit losses came up to N114.7 billion, up from N46.6 billion, resulting from incremental provisions from oil and gas sector. Other sectors include construction, transport, general commerce and information services sectors. Consequently, cost of risk increased to 6.9 per cent as against 3.0 per cent), while Non-performing loan (NPL) ratio increased to 24.9 per cent, largely driven by the translation effect of the Naira devaluation.
As a result, the company ended the period with a profit after tax of N42.5 billion, showing a decrease of 15 per cent from N50.2 billion in 2015.
Commenting on the results, the Group Managing Director of FBN Holdings Plc, UK Eke said: “FBN Holdings’ performance has again demonstrated its underlying resilience despite the ongoing macroeconomic and business challenges with gross earnings and profit before tax closing at N417.3 billion and N57.5 billion respectively. This has been achieved through sustained revenue generation as well as increased cost efficiencies.
Although the current currency weakness is a challenge for our remedial process, we are steadfastly progressing on improving the overall risk management culture, governance and technology as well as the degree of compliance across the group. The Group remains committed to ensuring sustained improvement in our performance with a view to restoring shareholder value.”
A further analysis of the results showed that operating expenses declined by 5.1 per cent to N161.8 billion, from N170.4 billion following broad range declines in: advert and corporate promotions, operational and other losses, maintenance, and regulatory cost.
The decline in operating expenses was, however, largely offset by staff costs (+4.6%, N2.9 billion) to N65.4 billion and to a lesser extent a 46.9 per cent increase in net insurance claims to N2.9 billion following the crystalisation of some operational risks in the ordinary course of business.
“Taking into consideration the current high inflation environment, a 5.1 per cent overall reduction in operating expenses is a testament to our commitment to drive cost efficiencies and instill operational excellence across our businesses,” the bank said.
Improved Cost-to-income ratio
Following strong operating income growth and a sustained decline in operating expenses, FBN Holdings cost-to-income ratio improved to 48.4 per cent, from 61.6 per cent.
“We remain steadfast in achieving further efficiency gains as we consolidate our two-pronged objectives of efficiency and revenue optimisation. We have realised the current improvement largely by entrenching budget discipline, deployment of shared services framework, staff rationalisation and other cost containment measures of the Group. There is scope for further progress as we continue to push ahead with a clear operational efficiency program including implementation of the enterprise resource planning/risk management project,” the bank explained.
Oil/ Gas Provisions Drive Impairment
The major jump in then net impairment charge on credit losses from N46.6 billion to N114.7 billion resulted from incremental provisions from oil and gas sector. Other sectors include construction, transport, general commerce and information services sectors. Consequently, Cost of risk increased to 6.9 per cent from 3.0 per cent), while NPL ratio increased to 24.9 per cent, largely driven by the translation effect of the Naira devaluation. According to the bank, it remains focused on remediation and recovery activities towards declassifying non-performing accounts and driving asset quality improvements.
Growth in Deposits, Loans
FBN Holdings total customer deposits rose by 10.9 per cent to N3.3 trillion, up from N2.97 trillion). The bank said it is focusing on ensuring an appropriate deposit mix at the optimum price.
“Low-cost deposits now represent 69.1 per cent of the group’s total deposits, up from 67.3 per cent as at December 2015. Deposit growth was essentially driven by a 41.8 per cent and a 9.4 per cent increase in domiciliary and savings deposits respectively,” it said.
Demonstrating the strength of its franchise and ability to continually attract a well-diversified and sustainable funding base, retail banking deposits within FirstBank (Nigeria) remain strong at 69.5 per cent of total deposits, up from 67.7 per cent as at December 31, 2015 as deposits in other business lines grew stronger.
Similarly, the bank’s total and advances to customers (net) increased by 21.6 per cent to N2.2 trillion, from N1.82 trillion as at December 2015. However, the loan growth was driven largely by the translation effect of the Naira devaluation.
“Due to the impact of the currency devaluation, foreign currency (FCY) loans, as at nine months 2016 now constitute 51.8 per cent of the loan portfolio as against 44.7 per cent as at December 2015. The oil and gas sector accounts for 43.1 per cent of the loan portfolio with oil upstream accounting for 21.9 per cent, while downstream and services are 13.9 per cent and 7.3 per cent respectively,” the bank said.
FBN Holdings said concerted efforts are being made on reducing the FCY net portfolio in dollar terms.
“The matured foreign currency forwards reduced some of the FCY exposure. In dollar terms, the foreign currency net loans portfolio in First Bank (Nigeria) declined by about $319 million. We are also focusing on converting some of the FCY exposures, to curtail the technical growth and its attendant impact of the loan portfolio. A total of $85 million have been converted to Naira. Our priorities remain non-oil trades, short-cycle and self-liquidating transactions with preference in the retail and consumer lending sector in order to optimise portfolio mix, enhance portfolio yield, improve asset quality and enhance capital,” the bank said.
Jump in total assets
FBN Holdings total assets increased by 21.6 per cent to N5.1 trillion, up from N4.2 trillion driven by: increase in loans to banks and customers as well as growth in investment securities. Loans to banks and customers grew by 69.0 per cent and 21.6 per cent to N652.0 billion and N2.2 trillion respectively, while investment securities were up by 25.9 per cent to N1.2 trillion, up from N970.2 billion as at December 31, 2015. Total interest earning assets grew by 28.6 per cent to N4.1 trillion from N3.2 trillion, representing 80.6 per cent of total assets, compared with 76.2 per cent as at December 31, 2015