FBN Holdings faces mounting credit losses, may throw off over N200b in three years

FBN Holdings Plc faced an upsurge in credit losses for the third straight year in 2022 and may throw overboard well over N200 billion of problem assets in three years since the trend began in 2020. The bank’s third quarter interim report shows a major increase of 85 percent in loan loss expenses quarter-on-quarter to N15 billion, jerking up the nine-month closing figure to about N37 billion.

The financial institution is seeing accelerated growth in loan loss charges for the third year running from 21 percent in 2020 to 48.3 percent in 2021. Over the three years to the end of September 2022, the bank has charged off a total of more than N190 billion in loan impairment expenses from revenue.

The biggest upsurge may happen in the final quarter in line with the bank’s reporting pattern. Of the N91.7 billion loan loss expenses it reported at the end of 2021, as much as N57 billion or 62 percent was incurred in the final quarter.

The bank has therefore lost the critical advantage of declining loan loss expenses it held at half year. Net credit loss expenses had dropped by 18.7 percent year-on-year to N21.7 billion at the end of half year operations. The major increase in the third quarter has changed the course of loan loss expenses from declining to an increase of 5.5 percent year-on-year.

Despite the upsurge in credit losses in the third quarter however, FBN Holdings was able to regain momentum from a sharp slowdown in the second quarter. After tax profit soared from less than N2.8 billion in the same quarter in 2021 to N34.7 billion for the third quarter.

This is the star record for the bank so far in the 2022 financial year, beating by far the 107 percent profit advance in the first quarter and the much-deflated 7.5 percent improvement in the second.

Quarterly profits peaked at roughly N35 billion in the third quarter after dropping from N32 billion in the first quarter to N24 billion in the second, summing up to N91.3 billion after tax profit at the end of September 2022.

Profit improvement reflects the ability of the bank’s management to counter the increase in credit loss expenses with accelerated growth in revenue and moderation in interest expenses in the third quarter. Interest earnings led revenue growth at an increase of 45 percent quarter-on-quarter to N144 billion, representing an additional income of N45 billion raked in during the quarter.

At N47.4 billion, interest expenses grew by 18.6 percent quarter-on-quarter, slowing down from 28.4 percent growth at half year. This enabled an outstanding growth of over 63 percent in net interest income to N96.6 billion in the third quarter.

The gain in earnings and the slowdown in cost, produced a favourable balance of cost and income for the bank at the end of the third quarter. Gross earnings amounted to N547 billion for the nine months of operations to September 2022, representing a year-on-year growth of 26.5 percent.

Revenue growth accelerated from 22.4 percent at half year and is led by interest earnings that grew by 42.4 percent year-on-year to N370.4 billion. Some earnings disappointments were recorded from foreign exchange loss of over N14 billion in the third quarter and a drop of 26 percent in net gain on financial instruments to less than N22 billion at the end of the third quarter.

Reinforcing revenue growth is a slowdown in interest expenses from 28.4 percent increase at half year to 24.4 percent to close at N120.8 billion at the end of the third quarter. Net interest income accelerated from 47 percent growth at half year to 53 percent advance year-on-year to close at N249.5 billion at the end of the third quarter.

Despite the upsurge in loan loss expenses in the third quarter, the year-to-date position still afforded a reasonable cost saving that powered the growth of net income. Net interest income after loan impairment charges grew by 66 percent year-on-year to about N213 billion, reflecting the cost saving from net loan loss expenses.

Operating expenses also afforded some cost saving for the bank with a slowdown from 22 percent growth at half year to 15 percent increase year-on-year to stand at N264 billion at the end of the third quarter.

Accelerated growth in gross earnings and a slowdown in operating cost, sum up the favourable cost-income combination that boosted FBN Holdings’ profit capacity at the end of the third quarter.

A decline in operating cost margin from 53 percent in the same period last year to 48 percent at the end of the third quarter, enabled an increase in net profit margin from 9 percent to 16.7 percent over the same period.

The direction that loan impairment expenses will follow in the final quarter is the critical factor to watch out for on whether there will be a further boost in profit capacity at full year or a slim down.