FBNH – Earnings Propped by Growth in Non Interest Income

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First Bank Nigeria Holding (FBNH) recently released its unaudited financial results for Q1, ended 31st, March 2020 to the Nigerian Stock Exchange, which indicated a strong performance in earnings amidst the lower-yielding interest environment. The bank recorded gross earnings of NGN 159.68 Billion in Q1, 2020 from NGN 139.43 Billion in Q1, 2019, representing an increase of 14.52% q/q in earnings for the period. The increase in topline revenue year-on-year (y/y) was supported by the advancement in non-interest income by 88.93%.

Net interest income was down by 15.92% to NGN 60.25 billion, mainly resulting from a 4.22% reduction in interest income, which was due to the declining interest environment. Interest Income dropped by 4.22% to NGN 104.90 billion from NGN 109.53 billion in the corresponding quarter of 2019.

The decline in interest income was as a result of 76.71% and 11.00% drop in interest income received from banks and investment securities to NGN 2.49 billion and NGN38.48 billion respectively in Q1 2020. Although, the bank’s loan book expanded by 12.69% to NGN 2.93 trillion.

Also, interest expense advanced by 17.91% from NGN 37.86 billion in Q1 2019 to NGN 44.65 billion in the period under review, majorly driven by growth in interest paid to banks on deposit from NGN 7.19 billion in Q1 2019 to NGN 17.90 billion, representing an enhancement of 149.35% in the period of 2020. However, interest paid to customers on deposit dropped by 2.69% from NGN 27.38 billion to NGN 26.64 billion in Q1 2020.

In the period under review, Non-interest revenue advanced by 88.93% from NGN 26.32 billion in Q1 2019 to NGN 49.73 billion in Q1 2020. The rise in non-interest revenue was propped up by the growth in fees and commissions (6.82%), net gains on investment securities (747.52%), financial instrument (2816.94%) and dividend income (102.93%).

Furthermore, operating expenses spiked by 7.88% to NGN 71.60 billion from NGN 66.37 billion in Q1 2019 driven by an increase in personnel expense (4.43%), depreciation cost (24.83%) and other operating expense (7.91%).

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Profit before tax (PBT) stood at NGN 28.68 billion indicating an increase of 61.45% from NGN 17.76 billion recorded in Q1 2019, supported by the drop in impairment charges and increased operating margin. Profit after tax (PAT) in Q1 2020 stood higher by 59.33% to NGN 23.14 billion from NGN 14.52 billion at the end of the corresponding period of 2019.

Net Loans and advances expanded by 12.69% to NGN 2.93 trillion from N2.60 trillion in FY 2019. Loan to Deposit ratio stood at 53.56% when compared with FY 2019 which settled at 53.27%. Total deposits also expanded by 12.09% from NGN 4.88 trillion in FY 2019 to NGN 5.47 trillion at the end of Q1 2020. Our blended target price is N13.06. We recommend a BUY at the current market price, as the stock trade’s at a discount to our intrinsic value.