FBN Holdings strengthened its profit performance at the end of half year operations in June 2018, showing improved prospects for sustaining recovery for the second year.
The bank’s position has shifted from a profit decline in the first quarter to a year-on-year growth at the end of the first half. That has placed it in a position to build profit further this year after a 233% rebound in 2017.
Revenue performance remains generally weak but there is an improvement from a slight decline in gross earnings in the first quarter to a marginal improvement at half year. The bank closed the period with gross earnings of N294.57 billion, an improvement of 1.5% year-on-year. It closed last year with gross earnings of about N598 billion – a marginal improvement of 2.7% and the least revenue growth record in many years.
Interest income – the main revenue line of the bank continues to decline at 3% to N225 billion at the end of June. This seems to reflect a sustaining decline in the bank’s net loans and advances to customers. At about N1.86 trillion at the end of June, loans and advances to customers have declined further from N1.9 trillion at the end of the first quarter. It is also a continuing decline from the peak of N2.08 trillion in December 2016.
Loans and advances to banks have however continued to grow at 15% to over N857 billion over the same period. Restructuring the credit portfolio seems to have been warranted by the massive credit losses the bank has been experiencing since 2014.
An increase of 19.4% in non-interest income countered the decline in interest earnings and permitted the marginal gain in revenue during the review period. Top revenue drivers for the bank include net gains on investment securities, which rose from a loss position in the same period last year to over N5 billion at the end of June. Also net gain on foreign exchange rose by 158% to about N13 billion over the same period.
Against the decline in interest income, interest expenses grew by 11% year-on-year to N75.76 billion at the end of June 2018. That caused a drop of about 9% in net interest income to N149.64 billion. Customer deposits grew far below the increase in interest expenses at 4% and deposits from banks by 3% – indicating a significant increase in the average cost of funds for the bank.
With slow growth in the low cost customer deposits, deposits from banks have grown in proportion of total deposits from less than 5% at the end of 2015 to over 17% at the end of June 2018.
Loan loss expenses went down by 15% to N52.81 billion at the end of half year operations and provided the cost saving that enabled the bank to improve profit during the review period. The figure however remains large – indicating that despite a possible decline, net charge for credit losses could hit a triple digit figure for the fourth year running. That would raise net credit impairment expenses to the region of N600 billion for FBN Holdings in four years.
The bank closed half year operations with an after tax profit of N33.48 billion, a year-on-year increase of 15.7% – improving from a 7% decline in the first quarter. Cost saving from loan loss expenses enabled the bank to improve profit margin and grow profit from flat revenue.
The full year profit outlook indicates improved prospects for sustaining profit recovery for the second year. The bank closed last year with an after tax profit of N40 billion, less than one-half of its peak profit figure of over N84 billion in 2014.
The extent the bank can sustain profit performance in the second half of the year depends very much on whether loan loss expenses would keep declining or rather increase. Last year, the credit loss expenses expanded in the second half from N62.4 billion at half year to over N150 billion at the end of the year.
The bank earned 91 kobo per share at the end of the second quarter, up from 79 kobo per share in the same period last year. It closed the 2017 financial year with earnings per share of N1.21 and paid a cash dividend of 25 kobo per share