FBN Holdings Plc report shows an expansion in its gross earnings
FBN Holdings Plc (FBNH) released its 9M-22 unaudited financial statements after market close on 27 October, showing an expansion in its gross earnings (+26.7% y/y). Accordingly, the HoldCo reported a significant growth in 9M-22 EPS to NGN2.51 (+124.1% y/y vs 9M-21: NGN1.12).
Interest income grew by 42.4% y/y to NGN370.36 billion as all contributory lines save for the income from loans and advances to banks (-19.9% y/y to NGN19.21 billion) recorded higher revenue. Specifically, income from loans and advances to customers grew by 47.0% y/y, supported by the HoldCo’s risk asset creation during the period, evidenced by the 24.9% YTD rise in loans and advances to its customers to NGN3.60 trillion. Likewise, income from investment securities increased by +54.9% y/y to NGN80.45 billion, despite the decline in the bank’s investment securities (-4.6% YTD to NGN2.89 trillion). We attribute the increase in the income from investment securities to the attractive yields in the fixed-income market.
Similarly, interest expense grew by 24.4% y/y to NGN120.83 billion due to the HoldCo incurring higher costs on its deposit (cost of fund increased by 20bps to 2.1% vs 9M-21: 1.9%). Precisely, expenses on deposits from customers and financial institutions increased by 42.1% y/y and 6.5% y/y to NGN77.27 billion and NGN25.39 billion, respectively. We note that the higher cost incurred on customers’ deposits is due to the deteriorating funding mix – CASA 9M-22: 80.7% vs FY-21: 82.8%. Eventually, the net interest income (ex-LLE) settled higher at NGN212.82 billion.
The HoldCo’s non-interest income (NII) increased marginally by 1.8% y/y to NGN156.99 billion, aided by the gains from other income (+32.1% y/y to NGN15.03 billion) and fees and commission (+5.9% y/y to NGN91.00 billion). However, on the flip side, the lower income generated from FX (-63.9% y/y to NGN2.14 billion) and investment securities (-4.4% y/y NGN48.83 billion) trading slowed the growth in NII. Consequently, the operating income grew by 31.0% y/y to NGN369.82 billion.
Further down, operating expenses advanced by 15.2% y/y to NGN264.32 billion, driven by the increase in regulatory costs – deposit insurance premium (+336.9ppts y/y to NGN10.34 billion), AMCON levy (+29.2% y/y to NGN59.30 billion) and personnel expenses (+7.0% y/y to NGN84.91 billion). Given the faster increase in operating income relative to OPEX, the cost-to-income ratio (ex-LLE) settled lower at 71.5% (9M-21: 81.3%).
Overall, profit before tax advanced by 99.3% y/y to NGN105.49 billion; however, despite the increase in income tax expense (+17.6% y/y), the profit after tax printed higher at NGN91.29 billion.
Management call today (28 October 2022) at 3.00 pm Nigerian time. Click here to register.
Comment: 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.
