FBN Holdings broke free from a two-year downslide in profit performance at the end of the third quarter of 2017 and established a moderate year-on-year improvement. The bank closed last year with just one-sixth of its peak net profit figure of over N84 billion in 2014. At the end of September this year, after tax profit was standing more than three times the full year figure in 2016.
Loan loss expenses remain large however despite a 15% drop year-on-year, which leaves full year profit prospects a bit clouded. In 2016, the bank posted an after tax of N42.52 billion at the end of the third quarter – which diminished to N14 billion at full year.
The final quarter drop in profit was caused by an upsurge in loan impairment charges from below N115 billion in September 2016 to over N226 billion at full year. There isn’t a convincing indication that the pattern seen in 2016 isn’t going to be repeated in 2017 with credit losses remaining that large.
Gross earnings improved by 5.6% year-on-year at the end of the third quarter to over N441 billion. Interest income is the strength for the moderate revenue growth at the end of the third quarter, raising hopes that a long decelerating trend in interest income might change direction in 2017.
Interest income has slowed down every year since 2013, reaching a marginal improvement of 2.3% in 2016. A growth of 28% in interest income at the end of September to over N356 billion is a major positive development for the bank so far this year.
The full year revenue outlook indicates that the moderate improvement is likely to prevail to the end of the year. The bank grew gross earnings by 15% to N581.83 billion in 2016.
On the other hand, non-interest income, which was the revenue growth driver last year with a top record growth of 66%, has cooled off this year so far. Last year’s revenue growth centre – foreign exchange income, which grew by over 300% to N89 billion, dropped by 92% to N5.6 billion at the end of the third quarter.
Relative to the weakness in revenue performance, all the three main expense lines of the bank pose a challenge to management. Interest cost is the biggest headache for the bank in the current year, breaking loose from a drop of 23% at the end of last year to an upsurge of 34.4% at the end of September. Compared to the increase of 28% in interest income, the bank is devoting an increased proportion of earnings to interest expenses.
Total operating expenses grew ahead of revenue at 8.5% to N175.35 billion, also claiming an increased share of gross earnings. Operating cost margin has increased from 38% at the end of last year to 40% at the end of September 2017. That left net profit margin flat at 10.2% in September 2017.
The bank ended the third quarter operations with an after tax profit of N45 billion, a year-on-year increase of 5.8%. With that, FBN Holdings has ended the downslide in profit that has run from 2015 up to the end of the second quarter last June.
The full year profit outlook for 2017 will be shaped by the direction credit loss expenses might take in the final quarter. If the final quarter upsurge experienced last year does not reoccur this year, a big rebound in profit is to be expected from FBN Holdings at full year. The risk of a final quarter rise in impairment loss on risk assets remains elevated for the bank.
The bank earned N1.22 kobo per share at the end of the third quarter, improving from N1.17 in the same period last year. Earnings per share had dropped from 98 kobo in the third quarter of last year to 39 kobo at the end of the year. The bank gave out 20 kobo per share to shareholders in cash dividend for its 2016 operations.