FBN Holdings Plc has announced a 7.0 percent year-on-year increase in its gross earnings to N417.3 billion as against N390.0 billion recorded as at September 2015. The increase reflects the strong business fundamentals as it kept the revenue momentum amidst a slow business environment.
However, despite the 56.5% y-o-y increase in non-interest income to N131.0 billion, interest income declined by 7.3% y-o-y to N278.6 billion (Sept 2015: N300.4 billion).
Net-interest income
This improved by 5.2% y-o-y to N202.9 billion (Sept 2015: N192.9 billion), driven by a 38.4% reduction in interest expense on customers’ deposits to N56.7 billion (Sept 2015: N92.0 billion). This , according to the bank, was partly offset by a 7.3% decline in interest income, largely due to a 4.7% y-o-y drop in loans to customers to N193.0 billion (Sept 2015: N202.5 billion) due to tightening of its risk acceptance criteria, as well as 12.7% y-o-y decrease in interest on investment securities to N74.1 billion (Sept 2015: N85.0 billion).
Its cost of funds declined to 2.7% (Sept 2015: 4.0%) as we deliberately optimise our deposit mix in a rising interest rate regime. Average yields on customers’ loans, investment securities and loans to banks decreased to 12.9%, 9.0% and 2.9% respectively from 13.2%, 13.6% and 3.9% the year prior. Consequently, the blended yield on interest earning assets declined to 10.2% (Sept 2015: 12.1%) resulting in a net interest margin decrease to 7.5% (Sept 2015: 7.7%).
Non-interest income
Similarly, non-interest income (NII) increased by 56.5% y-o-y to N131.0 billion (Sept 2015: N83.7 billion) and currently contributes 39.2% to net revenue (Sept 2015: 30.3%). The increase in non-interest income has been 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 (Sept 2015: N22.5 billion), representing 52.2% of non-interest income (Sept 2015: 26.8%). Adjusting for foreign exchange income, non-interest income increased by 2.3% y-o-y.
Fees and commission
Fees and commission (F&C) income, representing 40.2% (Sept 2015: 60.9%) of total non-interest income, grew by 3.3% to close at N52.7 billion (Sept 2015: N51.0 billion).
This improvement was driven primarily by: a 22.2% increase in electronic banking fees to N15.5 billion (Sept 2015: N12.7 billion), a 109.2% increase in account maintenance fees to N11.3 billion (Sept 2015: N5.4 billion) as well as an increase in other fees and commission (+97.4%) to N6.1 billion. Electronic banking fees represented the highest component of F&C at 29.4% up from 24.9% in the prior year, with account maintenance fees accounting for 21.4% of F&C (Sept 2015: 10.6%).
Demonstrating the revenue synergies inherent in its business and enhancing the contribution to the non-interest income from the non-commercial banking businesses, net insurance premium further improved to N6.8 billion from N4.3 billion (+60.5%) in the prior year. Similarly, financial advisory and fund management fees from our merchant banking and asset management business increased by 95.1% and 93.2% respectively to N5.0 billion and N1.7 billion.
Operating expenses
Operating expenses declined by 5.1% y-o-y to N161.8 billion (Sept 2015: N170.4 billion) following broad range declines in: advert and corporate promotions (-51.0%, N3.5 billion) to N3.3 billion, operational and other losses (-59.4%, N3.3 billion) to N2.3 billion, maintenance (-10.8%, N1.5 billion) to N12.6 billion and regulatory cost (-4.9%, N1.1 billion).
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% increase in net insurance claims to N2.9 billion following the crystallisation of some operational risks in the ordinary course of business.
Taking into consideration the current high inflation environment, a 5.1% overall reduction in operating expenses is a testament to our commitment to drive cost efficiencies and instil operational excellence across our businesses.
Cost-to-income ratio
Cost-to-income ratio improved to 48.4% (Sept 2015: 61.6%) following strong operating income growth and a sustained decline in operating expenses. We remain steadfast in achieving further efficiency gains as we consolidate our two-pronged objectives of efficiency and revenue optimisation. We have realized the current improvement largely by entrenching budget discipline, deployment of shared services framework, staff rationalization 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.
Net impairment charge
Net impairment charge on credit losses came up to N114.7 billion (Sept 2015: N46.6 billion), primarily driven by 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% (Sept 2015: 3.0%), while NPL ratio increased to 24.9%, largely driven by the translation effect of the Naira devaluation. We remain focused on remediation and recovery activities towards declassifying non-performing accounts and driving asset quality improvements.
Profit before tax
Profit before tax closed 3.5% lower y-o-y at N57.4 billion (Sept 2015: N59.6 billion). Income tax expense was N14.9 billion (Sept 2015: N9.3 billion), resulting in an effective tax rate for the period at 26.0% (Sept 2015: 15.7%). As a result, earnings per share of N1.56 (Sept 2015: N1.95), with post-tax return19 on average equity of 9.4% (Sept 2015: 12.2%) and post-tax return19 on average total assets of 1.2% (Sept 2015: 1.5%).
Total assets
Total assets increased by 21.6% y-t-d to N5.1 trillion (Dec 2015: 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% and 21.6% to N652.0 billion and N2.2 trillion respectively (Dec 2015: N385.8 billion and N1.82 trillion), while investment securities were up by 25.9% y-t-d to N1.2 trillion (Dec 2015: N970.2 billion). Total interest earning assets grew by 28.6% y-t-d to N4.1 trillion from N3.2 trillion, representing 80.6% of total assets (Dec 2015: 76.2%).
Total customer deposits
Total customer deposits rose by 10.9% y-t-d to N3.3 trillion (Dec 2015: N2.97 trillion). We are focusing on ensuring an appropriate deposit mix at the optimum price. Low-cost deposits now represent 69.1% of the Group’s total deposits, up from 67.3% as at December 2015.
Deposit growth was essentially driven by a 41.8% and a 9.4% increase in domiciliary and savings deposits respectively. Demonstrating the strength of our franchise and ability to continually attract a well-diversified and sustainable funding base, retail banking deposits within FirstBank(Nigeria) remain strong at 69.5% of total deposits (Dec 2015: 67.7%) as deposits in other business lines grew stronger y-t-d. Foreign currency deposits now represent 18.5% of the Group’s total deposits (Dec 2015: 14.5%) but 20.4% (Dec 2015: 17.8%) of the FirstBank(Nigeria) deposits at N516.1 billion.
Total loans & advances
Total loans & advances to customers (net) increased by 21.6% y-t-d to N2.2 trillion (Dec 2015: N1.82 trillion), driven largely by the translation effect of the Naira devaluation.
Due to the impact of the currency devaluation, FCY loans, as at 9M 2016 now constitute 51.8% of the loan portfolio (Dec 2015: 44.7%). The oil and gas sector accounts for 43.1% of the loan portfolio with oil upstream accounting for 21.9%, while downstream and services are 13.9% and 7.3% respectively.
The sectors largely affected by the devaluation are: oil and gas, manufacturing, power, and information technology. Adjusting for the movement in currency, real loan growth would have been flat y-t-d. Accordingly, the impact of devaluation on account of translation has essentially contributed to the growth in the non-performing loan book and the corresponding degree of provisions.
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, y-t-d, the foreign currency net loans portfolio in FirstBank (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 y-t-d.
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.
Shareholders’ funds
Shareholders’ funds closed at N624.6 billion, up 7.9% y-t-d (Dec 2015: N578.8 billion), benefitting from revaluation gains of N41.99 billion, taking foreign currency translation reserves to N50.1 billion (Dec 2015: N8.1 billion) as well as retained earnings of N52.56.6 billion, closing at N215.7 billion (Dec 2015: N163.2 billion).
Capital adequacy ratio
Capital adequacy ratio for FirstBank (Nigeria) closed at 15.4% (excluding 9M 2016 profit) (Dec 2015: 17.1%), while tier 1 ratio was 11.98% (Dec 2015: 13.3%). Capital adequacy ratio for FBN Merchant Bank closed at 28.9% (Dec 2015: 24.9%) above the 10% required by regulation, with a tier 1 ratio of 28.3% (Dec 2015: 24.4%).
Liquidity ratio
Liquidity ratio for FirstBank (Nigeria) closed at 54.3% (Dec 2015: 58.6%) not only in excess of the 30% regulatory mark, but also above 50% for most part of the year.
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