Facts behind FBN Holdings’ near doubling of profit in Q2

FBN Holdings Plc rode on the back of two major game-changing factors to fast-tracked earnings growth in the second quarter that powered an exceptional growth of 96 percent in after tax profit for the quarter. The bank built a profit of N22.5 billion for the second quarter that represents 59 percent of its closing profit of N38 billion for the half-year ended June 2021.

The significant improvement in earnings performance for the bank in the second quarter reflects positive changes in three major operating functions. These are revenue growth, cost-saving from a cut in loan impairment charges and interest expenses.

A positive revenue growth helped the bank to absorb a higher level of costs and cost-saving from interest expenses and loan impairment charges enabled its management to push up profit margin.

Non-interest income accounted exclusively for the improvement in gross earnings for FBN Holdings in the second quarter. This was led by net gains from financial instruments of over N19 billion for the quarter against a net loss of N1 billion in the same quarter in 2020.

Other operating income also scurried from less than N1 million to N14.6 billion quarter-on-quarter. On the downside of earnings in the quarter are a drop of over 72 percent in net gains on the sale of investment securities and a foreign exchange loss of over N2 billion over the same period.

Revenue gains were supported by significant cost savings from loan impairment charges and cost of funds. Loan impairment expenses reversed from a strong growth of about 36 percent in the first quarter to a drop of 46 percent in the second.

The bank closed the half year operations with net loan impairment expenses of N24.5 billion, which represents a drop of 20 percent year-on-year. The development brings the bank back on the track of keeping credit losses declining for the fifth year running.

Despite that interest cost increased slightly in the second quarter, the half year figure of about N57 billion still represents a drop of about 25 percent year-on-year.

A combination of revenue improvement and cost saving yielded a strong improvement in profit margin for the bank in the second quarter. This improved the year-on-year net profit margin from 11 percent in the first quarter to 13 percent at half-year.

The outstanding profit growth the bank recorded in the second quarter is, therefore, a function of the upturn in revenue and a gain in profit margin.

With a strong outing in the second quarter, FBN Holdings has recovered lost ground in earnings performance in the first quarter with a turnaround in revenue and profit. The development has changed its earnings story from a 39 percent profit drop in the first quarter to a 7 percent profit improvement year-on-year at the end of half year operations.

There is also a turnaround from a drop of over 14 percent in gross earnings in the first quarter to an increase of 13 percent quarter-on-quarter in the second quarter. The upturn in revenue in the second quarter has changed the half year position to a slight decline of 1.4 percent to close at N292 billion.

Interest income remains a weak point in the bank’s revenue performance, closing the half-year operations with a drop of over 22 percent to N161 billion. The drop in interest income was largely compensated by an increase of 47 percent in non-interest revenue to N131 billion year-on-year. This pushed up the bank’s revenue performance from a drop in the previous quarter to a slight decline at half-year.

The drop in interest income reflected in a 21 percent drop in net interest income to less than N104 billion at half-year. Also, despite the drop in loan impairment expenses, net interest income after the charges still dropped by 21 percent to N79 million at the end of June 2021.

The strong growth of 47 percent in non-interest income to N131 billion provided the remedy that levelled up the drop in interest income and raised operating profit by 9 percent year-on-year to N45 billion.

The developments have set the bank back on the course of recovery and growth, which it has maintained over the past five years.

FBN Holdings ended the first half of the 2021 financial year with a balance sheet size of over N8 trillion, one of the largest bank balance sheets in the Nigerian banking space. It grew the size of the balance sheet by 4 percent from the closing figure of N7.7 trillion in 2020.