FBN Holdings Shows Resilience

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Despite making huge provisions for impairment charges, FBN Holdings Plc ended the first half of this year with modest gains, writes Goddy Egene

“This has been a very difficult time in the history of our institution. Despite the tough macroeconomic and regulatory backdrop during the year, our underlying business remains strong as reflected in the gross earnings growth of 4.9 per cent to N505.2 billion – clearly a leading position in the industry.

“In coming periods, our primary focus is to drive efficiency and operational excellence across all operating companies. Key initiatives in achieving this, as we eliminate the value eroding factors and seek to reposition the Group towards a new growth path, include: enhanced focus on moderating risk appetite, risk management practices and culture; disciplined cost containment; asset optimisation; and synergy realisation.”

The above were the words of the Group Managing Director, FBN Holdings Plc, Mr. UK Eke while commenting on the performance of the financial institution for the 2015 year. It was a year FBN Holdings’ its profit after tax plunged to N15.1 billion from N84 billion in 2014.

According the financial institution, the fall in bottom-line was caused by the recognition of impairment charges on some specific accounts resulting from a reassessment of the loan portfolio within its commercial banking business. The bank made a provision of N119.3 billion for impairment, up from N25.9 billion in 2015. However, going by the results of the FBN Holdings released last week, things are getting better as the level of decline has significantly reduced.

Financial performance
An analysis of FBN Holdings’ results show that it recorded gross earnings of N267.9 billion in H1 of 2016, which is 1.2 per cent lower than the N271.3 billion in H1 of 2015, reflecting the slow business environment and restricted trade flows.

Net interest income fell by 5.0 per cent to N126.1 billion from N132.7 billion, impacted by the reduction in the average volume of loans to customers due to deliberate measures on moderating lending activities and lower yields from interest earning assets relative to the previous period.

Non-interest income increased by 52 per cent to N94.1 billion, up from N61.9 billion and contributed 42.7 per cent to net revenue in 2016, compared to 31.8 per cent in 2015. Foreign exchange income stood at N52.9 billion, up by 56.3 per cent from N16.9billion in 2015.

A further breakdown shows that fees and income, was N34.7 billion, as against N33.2billion in 2015. The improvement was driven by N37.5 per cent in electronic banking fees to N10.4 billion, from N7.5 billion as well.

Underscoring the revenue synergies inherent in its business and enhancing the contribution of the non-commercial banking businesses to the Group, net insurance premium grew by 30.5 per cent to N3.5 billion, from N2.7billion in 2015.

Similarly, financial advisory and fund management fees from its merchant banking and asset management business increased by 76.5 per cent and 75.9 per cent respectively to N3.2billion and N1.2billion.
Despite the rising cost of doing business in the country, FBN Holdings was able to control its expenses. Consequently, operating expenses declined by 13 per cent from N119.9billion to N104.3billion. Cost to income ratio improved from 61.6 per cent to 47.4 per cent in 2016.

But net impairment charges jumped to N69.9 billion in 2016, from N22.6 billion in 2014. The rise in impairment charges was driven primarily due to the impact of the devaluation of the Naira on the oil and gas, real estate and general sectors.
In terms of total assets, FBN Holdings closed the H1 with a total assets of N4.8 trillion, up from N4.2 trillion as at December 31, 2015, essentially driven by growth in loans to banks and customers by 87.8 per cent and 16.2 per cent to N724 million and N2.1trillion respectively.

The bank’s total customer deposits customer deposits rose by 4.2 to N3.1 trillion from N2.97 trillion).
“We sustained effort in achieving an appropriate deposit mix at the right price. Underscoring this, the proportion of term deposits to total deposits remained stable but at a lower average cost. Low-cost deposits now represent 67.5 per cent of the Group’s total deposits from 67.3 per cent as at December 2015,” the bank said.

A further analysis of the deposit indicates that retail deposits in First Bank (Nigeria) represent 71.2 per cent of total deposits, up from 67.7 per cent in December 2015, with corporate and commercial banking deposits representing 15.0 per cent of total deposits down from 20.1 per cent in December 2015.
Total loans and advances to customers increased by 16.2 per cent to N2.1 trillion, up from N1.82 trillion in December 2015, driven largely by the translation effect of the Naira devaluation on foreign currency loans.

Commercial Banking Group
A breakdown of the performance of the commercial banking arm of the FBN Holdings Plc showed that profit after tax rose down by 26 per cent to N29.4 billion, from N39.9 billion in 2015. Total assets rose by 15.4 per cent to N4.39 trillion, from N3.97 trillion.

Commenting on the results, the MD/CEO of First Bank, Dr. Adesola Adeduntan said: “We have again demonstrated very strong revenue generation capacity with gross earnings of N244.9 billion in the first half of the year. Again, this reflects that the fundamentals of our underlying business remain strong. In addition, we consolidated on improving trends in operating expenses, with a 14.3 per cent year on year reduction achieved in a 16.5 per cent inflationary environment.”

“Despite the 40 per cent devaluation impact on our risk assets, we have made progress with building stronger risk management architecture and strengthening the overall control environment. The economic slowdown has continued to constrain lending activities; however, as we overhaul our risk management processes, lending will be measured, very structured and controlled. We are focusing on growing transactions/activities of our existing customers as we keep leveraging our robust technology to provide digital banking and other innovative solutions to best serve our customers.”

The Commercial Banking business contributed 91.0 to the group’s gross earnings as against 91.5 per cent in 2015, and 78.5 per cent to the Group’s profit before tax compared with 91.1 per cent in 2015.

Merchant Banking & Asset Management
The weak macroeconomic indices (rising inflation, foreign exchange scarcity, GDP contraction) continue to limit business activity and impacted the performance Merchant Banking and Asset Management (MBAM) business. MBAM’s total revenue reduced by 1.1 per cent to N18.7 billion, down from N18.9 billion, while profit before tax increased by 66.1 per cent to N9.8 billion, up from N5.9 billion, demonstrating the resilient and diversified nature of the business portfolio.

The key drivers of performance were the Investment Banking, Corporate Banking, Fixed Income Trading and Trustee businesses. The performance was also positively impacted by gains from the revaluation of foreign currency assets. Assets under management (managed funds) remained flat at N220 billion as against N219 billion as at December 2015, while total assets stood at N186.7 billion, compared with N168.2billion.

“Looking ahead to the second half of the year, despite the more liberalised exchange rate system, fairly stable oil prices, and a budget aimed at stimulating growth, we expect the macro headwinds to persist for some time before noticeable improvements start to materialise. We, however, expect our annuity like business to maintain a steady growth trajectory, whilst we cautiously grow our risk assets and seek to capitalise on periods of volatility,” the company said.

The MBAM business contributed 7.0 per cent to the Group’s gross earnings and 21.5 per cent to the Group’s profit before tax as against 6.7 per cent and 11.2 per cent in 2015 respectively.

Insurance Business
The insurance business group grew its revenue in the first half of the year due to increased sale of retail risk products, increased premium generation from corporate distribution and additional product offerings. The group continues to enjoy strong brand recognition and good patronage, which is reflected in its revenue profile.

Revenue for the Insurance group increased by 31.7per cent to N5.4billion, up from N4.1 billion in 2015. Profit before tax increased by 14 per cent to N1.38 billion, from N1.21billion in June 2015 largely attributable to increased claims settled in the general business during the period.
“We remain reasonably optimistic of the prospects to increase revenues from retail and public sectors of the economy, while leveraging on the synergy opportunities within the Group,” the company said.