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FBN Holdings Plc released its 2021FY audited financial statement on25th of May, showing that the bank recorded robust expansion in PAT (+99.9% y/y), albeit it was largely supported by recoveries totalling NGN141.03 billion (vs NGN11.23 billion in 2020FY), a fallout of recovery efforts by the bank on the age-long Atlantic energy loan which was previously written off. Consequently, the Holdco recorded an EPS from continuing operations of NGN4.17 (+102.4% y/y vs 2020FY: NGN2.06) and proposed a final dividend of NGN0.35/s (2020FY: NGN0.45), translating to a dividend yield of 3.3% based on the last closing price of NGN10.55 (25th of May 2022).
Interest income declined by 4.1% y/y to NGN369.05 billion, driven by the lower income from investment securities (-36.1% y/y) and loans and advances to banks (-11.1% y/y). The declines across these lines overshadowed the higher interest income from loans and advances to customers (+12.4% y/y), which was supported by increased risk assets creation (+30.0% y/y to NGN2.88 trillion).
Interest expense inched higher by 5.7% y/y to NGN140.81 billion, reflective of the growth in deposits from customers (+19.5% y/y to NGN5.85 trillion). Notably, the bank recorded an increase in CASA (low-cost deposits: current and savings accounts) mix to 82.8% (2020FY: 80.8%). Meanwhile, the expense on interest-bearing borrowings increased significantly (+102.2% y/y to NGN31.37 billion) in line with the expansion in the interest-bearing liabilities (+6.8% to NGN405.30 billion).
Non-interest income (NII) grew significantly by 95.4% y/y to NGN364.31 billion, underpinned by the surge in Other operating income (+705.4% y/y to 155.68 billion) which was predominantly driven by loan recoveries of NGN149.42 billion compared to NGN11.23 billion in 2020FY. Nonetheless, we observed expansions across other major lines, including FX revaluation (+382.5% y/y to NGN7.04 billion), FX trading (+125.7% y/y to NGN53.66 billion), and net fees and commission income (+24.4% y/y to NGN116.64 billion). The growth across these income lines were enough to offset the decline in gains from investment securities (-34.9% y/y to NGN31.30 billion).
Operating expenses expanded by 14.2% y/y to NGN334.18 billion, with the most pressure exerted by NDIC insurance premium (+40.0% y/y to NGN3.18 billion) and personnel expenses (+28.0% y/y to NGN128.77 billion). However, given the higher increase in operating income (+35.5% y/y), the cost-to-income ratio (after accounting for LLEs) settled lower at 66.7% (relative to 77.8% in 2020FY). Overall, profitability was impressive, with profit-before-tax surging by 99.1% year-on-year. Despite the higher income tax expense (+91.3% y/y NGN15.52 billion), profit-after-tax rose by 99.9% y/y.
Although the strong growth in after tax earnings is impressive, analysts at Cordros Capital note that the restructuring of the previously written-off loan is primarily responsible for the performance – normalizing for that, profit expansion would have settled at 80.4% lower year-on-year.
However, they think the weakness in core-income should improve as the bank expands risk asset creation at higher yields (given the recent hike of 1.5% in the MPR). Considering that the magnitude of recoveries in 2021FY is unlikely to reoccur this year, we envisage materially lower earnings growth over 2022FY. Our estimates are under review.