- Net interest margin (NIM) weakened by 40 bps to 7.0% reflecting the impact of falling asset yields (-80 bps) during the period. The weakness in NIM was, however, cushioned by the moderation in the cost of funds (-80 bps). Irrespective, net interest income (NII) improved by 4.7% YoY to N76.0 billion, largely driven by the 10.3% increase in interest-earning assets during the period.
- E-business fee income improved by 32.7% YoY as the bank deepened its digital offerings. The impact of this was, however, muffled by the 46.7% YoY jump in e-business expenses, highlighting the limited reach of the bank’s physical alternative channels. In contrast, despite the 28.3% growth in assets under management in the review period, asset management fees declined by 0.7% YoY reflecting the impact of regulatory-induced fee reduction
- Overall, non-interest income (-11.2% YoY) came in weaker in FY’19, weighed by a 4.1% YoY decline in net fees & commission income and lower FX revaluation gains (-62.0% YoY). In contrast, trading income improved 50.5% YoY, elevated by higher T-bills trading gains (+186.2% YoY) and derivative fair value gains (N2.0 billion vs a fair value loss of N345.8 million in FY’18)
- Gross loans grew 10.7% but asset quality was unhampered, with NPL ratio declining to 3.7% (FY’18: 5.9%) and cost of risk moderating to 1.8% (FY’18: 2.1%). Despite the growth in loans, loan to funding ratio remained at a low of 59.0% as at December 2019 (vs. CBN’s guidance of 65.0%)
- Operating expenses declined 2.9% YoY to N76.9 billion. This led to a 1.4 ppts decline in cost to income ratio to 69.4%. We note the 41.7% QoQ decline in operating expenses reported in Q4’19 (the cost to income: 50.9% vs average of 75.3% in the prior 3 quarters). We believe the reclassification of N6.5 billion as provisions write-back largely offset operating expense pressures. Absent the non-recurring write-back, cost to income ratio would have been 75.3%
- All in, ROE improved to 9.0% from 8.1% in FY’18. On regulatory compliance, CAR improved to 17.2% from 15.9% in FY’18, while liquidity ratio slipped to 32.9% from 50.4% in FY’18 (regulatory guidance: 30.0%).
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