FBN Holdings – Earnings Impress But Regulatory Concerns Linger

Fbn Holdings' Profit Increases By 48 Percent As Assets Increase To N9.5 Trillion.
Fbn Holdings' Profit Increases By 48 Percent As Assets Increase To N9.5 Trillion.
FBN Holdings Plc reported a 60.0% YoY growth in EPS to N0.64 in its unaudited Q1’20 result. Earnings support largely stemmed from elevated trading gains. We also note improvement in cost to income ratio (65.1% vs Q1’19: 67.7%), cost of risk (1.9% vs Q1’19: 2.7%) and NPL ratio (9.2% vs Dec. 19: 9.9%). Key regulatory ratios such as CAR (15.3%) and liquidity ratios (30.1%) remain, however, concerning.
  • Net interest margins (NIM) weakened by 1.4ppts to 6.3%. A 20 bps moderation in funding cost was not enough to ease NIM pressure. Overall, net interest income slipped by 15.9% YoY
  • Non-interest income soared 88.9% YoY. Key drivers of non-interest income growth are N21.8 billion in trading gains (vs N1.3 billion in Q1’19) and a two-fold increase in dividend income to N4 billion. Also supporting non-interest income was the 6.8% YoY growth in net fees and commission income, largely driven by increases in LC-related fees (+18.0% YoY) and E-Banking fees (+9.7% YoY).
  • Operating expenses climbed 7.9% YoY. However, we note the improvement in efficiency as the cost-to-income ratio moderated 2.6 ppts to 65.1% during the quarter. Cost of risk also slid lower to 1.9% from 2.7% in Q1’19, reflecting the 30.0% YoY fall in provision for loan losses.
  • Gross loans to customers rose 10.2% to N2.1 trillion. Asset quality, however, improved from 9.9% in December 2019 to 9.2% in March 2020.
  • All in, ROE improved to 15.3% versus 11.8% in Q1’19. On regulatory compliance, concerns abound as both CAR and liquidity ratio slipped towards border-line limits at 15.3% and 30.1% respectively.