Having resolved legacy risk assets issues, FBN Holdings Plc has created significant headroom for increased business and enhanced earnings that will ultimately lead to higher returns to shareholders, writes Goddy Egene
FBN Holdings Plc, the holding company of First Bank of Nigeria Limited and other subsidiaries is a leading force to reckon with in the financial sector and the Nigerian economy in general. At the stock market, the stock is regarded as one of the bellwethers. But in terms of returns, shareholders have not been very satisfied with the performance of FBN Holdings Plc lately. The firm’s performance was affected by huge non-performing loans, a development that made the board and management to adopt new risk management strategies.
At the end of the financial year ended December 31, 2019, those strategies have paid off significantly because FBN Holdings did not only report improved bottom-line but also recommended a dividend that will restore confidence of the shareholders and other stakeholders.
FBN Holdings Plc posted gross earnings of N627 billion in 2019, showing an increase of 6.7 per cent compared with N587.4 billion in 2018.Net interest income moved from N285.3 billion to N290.2 billion, while non-interest income rose from N132 billion to N159.2 billion. Impairment charges fell 41.5 per cent to N51.1 billion from N87.5 billion, while operating expenses rose 18.3 per cent to N314.7 billion from N266 billion. As result, profit before tax (PBT) grew by 30.9 per cent to N83.6 billion in 2019, from N63.9 billion in 2018, while profit after tax (PAT) rose 26.5 per cent to N73.7 billion compared with N58.2 billion. Earnings per share grew from 161 kobo to 195 kobo, out which the board recommended that 38 kobo be paid as dividend to the shareholders.
A further analysis of the results showed that customs’ deposits rose 15 per cent to N4.019 trillion, up from N3.486 trillion. Similarly, loans and advances to customers rose 10.9 per cent to N1.852 trillion, from N1.671 trillion. Total assets stood at N6.203 trillion, indicating a growth of 11.4 per cent from N5.568 trillion.
Post-tax return on average equity improved from 9.7 per cent to 12.4 per cent while non-performing loan (NPL) fell from 24.7 per cent to 9.9 per cent.
Shareholders’ funds closed at N661.1 billion, 25 per cent higher than N528.9 billion in 2018. Capital adequacy ratio for First Bank (Nigeria) remains above regulatory minimum of 15 per cent at 15.5 per cent while the capital adequacy ratio for FBNQuest Merchant Bank closed at 17.1 per cent, up from 12.2 per cent which is above the 10 per cent required by regulation for merchant banks.
Liquidity ratio for First Bank (Nigeria) remains healthy at 38.2 per cent and it is above the 30 per cent regulatory mark.
Meanwhile, the net interest income that rose to N290.2 billion was due to a growth in the interest income largely on account of the 15.2 per cent increase in interest earned from investment securities due to an increase in average volume of investment securities. However, income from customer loans declined by 6.8 per cent to N245.7 billion due to compressed margin arising from low interest rate environment during the financial year.
But income from customer loans and income from investment securities accounted for 55.5 per cent and 39.3 per cent of total interest income in 2019, compared to 60.5 per cent and 34.6 per cent in 2018.
However, cost of funds declined to 3.1 compared to 3.4 per cent in 2018 primarily on the back of bank’s efforts to maintain a cheaper funding mix as well as following the redemption of the $450 million FBN Eurobond in July 2019. Similarly, the group maintained a decent mix of low-cost deposits highlighting the strength of the brand.
According to FBN Holdings, ability to mobilise low-cost deposits is consistent with their strategic focus and they will continue to keep cost of funds low in the face of tight liquidity and stiff competition.
Non-interest income increased by 20.6 per cent largely driven by N10.5 billion and N10.8 billion fair value gains recorded on derivatives and debt securities instruments respectively compared to losses of N6.5 billion and N1.5 billion recorded in prior year respectively.
Also, fees and commission income grew 12.5 per cent to N104.3 billion, up from N92.7 billion on the back of growing volumes from electronic banking and alternative digital channels.
The fees and commission (F&C) income continues to lead the non-interest income revenue stream contributing a total of 65.5 per cent and 70.2 per cent in 2019 and 2018 respectively. The key drivers of F&C remained electronic banking fees and account maintenance fees which grew by 41.2 per cent and 7.6 per cent to N48.0 billion and N13.3 billion respectively.
The merchant banking and asset management business maintained a positive performance during the year amidst macro-economic headwinds. This performance was driven majorly by the fixed income trading, asset management, trustees and structured products businesses.
According to the business, it continued to focus on enhancing the quality of and diversifying its earnings by growing its investment management businesses, with assets under management (AUM) increasing by 22 per cent to close at N319 billion from N261 billion, thereby contributing positively to annuity fee income.
The FBNQuest Group gross earnings and profit before tax closed at N35.9 billion and N7.2 billion respectively, while total assets grew by 13.7 per cent to close at N248.6 billion.
Also, the insurance business group continues to grow its market share and further improve profitability. Gross premium written increased by 46.8 per cent to close at N44.9 billion while PBT rose by 29.1 per cent to N8.8 billion, from N6.8 billion in 2018. Insurance business contributed 5.9 per cent to the group’s gross earnings and 9.8 per cent to its profit before tax.
Company explains performance
Commenting on the results, the Group Managing Director, FBN Holdings Plc, UK Eke said: “We are happy to close the 2019 financial year on positive notes across a number of key metrics giving the group a clean-slate to accelerate its growth plan as we conclude the three-year Strategic Planning Cycle which ran from 2017-2019 and commence a new cycle which coincide with the start of a new decade. In line with our promise to the market, FBNHoldings closed the year with a 30.9 per cent increase in profit before tax and delivered its target of a single digit NPL which closed at less than 10 per cent.
Similarly, we successfully overhauled our risk management architecture, strengthened our processes by leveraging technology and institutionalising a strong credit culture across the lending entities. These deliberate steps have seen the NPL ratio of our vintage book remained below one per cent. In the same vein, we have made significant improvement in our revenue generation capacity with non-interest income benefiting from our market leadership in electronic banking channels. It is also noteworthy to highlight that our investments aimed at improving operational efficiencies and enhancing revenue accretion have resulted in higher cost-to-income ratio. The benefits of these investments will be realised in subsequent periods.”
Looking ahead, Eke said 2020 promises to be a challenging year but assured stakeholders that the institution is working hard to minimise its impact on its businesses by activating its business continuity plans thereby preserving the well-being of its employees and other stakeholders.
Also, commenting, Chief Executive Officer of FirstBank, Dr. Adesola Adeduntan, said: “The commercial banking group delivered a solid performance in 2019 with profit before tax increasing by 83.1 per cent despite varying degrees of challenges and volatility in the operating environment. As a bank, 2019 marked the effective completion of the 2017 – 2019 strategic cycle and a key accomplishment during the cycle is the substantial resolution of our non-performing loan portfolio (NPL ratio dropped to 9.7 per cent from 24.3 per cent as of 31 December 2018), thereby positioning the group for accelerated growth in profitability.
We recorded significant growth in our agent banking network with double digit growths in volume and value of transactions processed which further enhanced our leadership position in financial inclusion. Overall, we are pleased with the progress that has been made in our digital journey as over 85 per ent of our customers originated transactions are now processed on digital channels; we will continue to leverage technology to offer superior customer and enhance operational efficiency.”
According to him, as they commence the execution of a new 2020 – 2022 strategic plan and in line with the realities of providing innovative customer service excellence and generating expected shareholder returns, they reviewed their vision to be Africa’s bank of First Choice to align with our ambition to optimise returns through customer led innovation and discipline execution.
“Within this context, aggressive customer acquisition and excellence across products/channels/geographies is a priority to enhance revenue streams while we accelerate the drive to reduce overall cost to serve, improve employee productivity, enhance customer experience and maximise operational efficiency. We reiterate our focus on innovation, leveraging digital and emerging technologies to satisfy our customers, differentiate us from competition, drive revenue growth and optimise our business. As we progress with this new cycle, I am highly optimistic that 2020 and beyond will be more rewarding,” he said.