FBN Holdings cuts credit losses, lifts profit to new peak in 2020  

FBN Holdings Plc turned the table from a 64 percent upsurge in credit loss expenses at the end of the third quarter of last year to a decline at full year. The turnaround happened in the final quarter when management mowed down loan loss expenses figures by 88 percent quarter-on-quarter.

Loan impairment expenses remained huge at over N50 billion at the end of the 2020 financial year but it is a marginal decline from N51 billion in the preceding financial year. The development enabled the bank to maintain a trend of declining loan impairment charges for four years running from 2017.

Reversing a high speed upward run on credit loss expenses in the interim reports was a pleasant surprise from the bank at the end of the 2020 financial year. Cost saving gained from the big cut in loan impairment expenses boosted profit capacity in the final quarter.

The bank closed the 2020 financial year with a new profit peak of almost N90 billion despite revenue growth challenges it faced in the year. This is the first time in five years the bank would beat its 2014 peak profit figure of N84 billion. It suffered a drop of 82 percent in profit in 2015 and it has taken the bank so long to attain full recovery since then.

The strong profit performance in the year was achieved against a difficult revenue environment. Through the year, revenue maintained a trend of slowing down across the quarters, which ended with a drop by one-half quarter-on-quarter in the final quarter.

The full year earnings numbers show a marginal decline in gross earnings to N579 billion. This marks the lowest gross income for the bank in five years.

Against the decline in revenue, the bank grew after tax profit by 22 percent — which indicates major cost savings that raised its ability to convert the revenue into profit. With that, management was able to step over the revenue weakness to build profit.

Net profit margin rose to 15.5 percent at the end of the year, which is the highest level the bank has recorded in six years. The ability to convert a significantly increased proportion of gross earnings into profit was the key strength in FBN Holdings’ operations in 2020.

Interest income was the weak point on the bank’s earnings performance in 2020: it dropped by 11 percent to close the year at N385 billion. Loss of interest income was despite a major increase of about 20 percent in loans and advances to customers — which amounted to N2.2 trillion at the end of the year. This is the highest growth rate in customer lending volume for the bank since 2015.

Non-interest income made up for much of the drop in interest earnings but could not power an overall growth in revenue. Revenue growth driver in the year came from net gains on sale of investment securities, which advanced by 175 percent to close at over N48 billion for the year.

The main cost saving area for FBN Holdings last year is cost of funds, which moderated the impact of the drop in interest income. Interest expenses went down by about 13 percent to N133 billion in 2020 compared to the 11 percent drop in interest earnings.

It represents the lowest interest expense figure for the bank in four years. At the same time, the bank recorded an outstanding growth of 22 percent in customer deposits — which amounted to N4.9 trillion at the end of the 2020 financial year. This represents the strongest growth in customer deposits for the bank since 2014.

The bank’s management applied the drop in interest expenses against a strong growth in customer deposits to achieve a considerable reduction in the bank’s average cost of funds. Cost savings from interest expenses and credit loss expenses provided the strength for FBN Holdings to push profit higher in the face of the decline in gross earnings in the year.

FBN Holdings closed the 2020 financial year with an after tax profit of N89.7 billion, which was  supported by N14 billion profit from discontinued operations. The sharp cut in loan impairment expenses in the final quarter saved the day for the bank, enabling a step up in profit growth from 18.5 percent in 2019 to 22 percent in 2020.

Through the difficulties in the operating climate of 2020, the bank’s management was able to navigate operations to build a new profit high for shareholders in the year. The bank earned N2.45 per share at the end of the 2020 operations compared to N1.95 per share at the end of 2019.

Directors have proposed a cash dividend of 45 kobo per share for the 2020 operations, up from 38 kobo per share the bank paid for the 2019 operations.

FBN Holdings closed last year’s operations with an asset base of N7.7 trillion, total credit portfolio of N3.2 trillion and investment securities of over N1.5 trillion. It built the assets on customer deposits of N4.9 trillion and an equity cushion of N765 billion.