FBN Holdings: Revenue and profit end flat

FBN Holdings closed the third quarter operations with revenue and profit flat, losing the improved performance outlook with which it ended the first half in June 2018. Interest income – the main income line of the bank increased its pace of decline while interest expenses quickened its rate of increase. A moderating factor came from non-interest income, which accelerated to level up the decline in interest earnings.

Declining interest income against rising interest expenses is a general trend in the banking industry this year. This is a reflection of shrinking lending portfolios induced by massive credit losses on the side of earnings and the upward pressure on cost of funds coming from policies that have held back liquidity from banks.

FBN Holdings slipped back from a marginal improvement in gross earnings at the end of half year to a flat growth at the end of the third quarter. Accelerated growth in non-interest income could not fully counter the accelerated decline in interest earnings during the period. The bank closed its third quarter operations with gross earnings of N443.36 billion, inching up 0.4% year-on-year.

The bank closed last year with the least revenue growth record in many years. Gross earnings improved by 2.7% to N598 billion. This year, a worse revenue growth record looks likely for FBN Holdings at full year. We expect a slightly improved revenue growth in the final quarter that could push up full year growth record to 1.5%. This indicates gross earnings in the region of N607 billion for FBJN Holdings at the end of 2018.

Revenue growth so far is driven by foreign exchange income, which advanced by 326% year-on-year to nearly N24 billion at the end of September. Others are net gains on investment securities and fee and commission income. Interest income declined by 5.2% to N337.56 billion over the period, as the bank’s net loans and advances to customers were down by 4% from the closing figure last year.

Against the decline in interest income, interest expenses stepped up growth from 11% at the end of June to 14% at the end of September. That also increased the rate of drop in net interest income from 9% to 13% over the period. The average interest cost per unit of revenue grew from 28.6 kobo to 34.4 kobo over the review period.

Loan loss expenses dropped by 22% to N76.18 billion at the end of September, which helped the bank to partly counter the impact of interest expenses on the income statement. The figure still remains large with close to one-half of it arising in the third quarter alone. This continues to point to the possibility of credit losses hitting a triple digit figure for the fourth year running. That would raise net credit impairment expenses to the region of N600 billion for FBN Holdings in four years.

The strength in profit performance the bank put up at the end of half year was lost in the third quarter. After tax profit amounted to N44.90 billion at the end of September, a slip from N45 billion in the same period last year. This is against an increase of 15.7% at the end of half year operations.

The bank however remains on track towards sustaining profit recovery for the second year. It is already ahead of the after tax profit of N40 billion it posted at the end of 2017. Yet the full year position isn’t easily predictable, as loan loss expenses could grow out of proportion in the final quarter as happened last year.

In 2017, credit loss expenses expanded in the final quarter from N97.6 billion at the end of the third quarter to over N150 billion at the end of the year. That consumed part of the profit figure reported at the end of the third quarter, indicating that the final quarter ended in a loss.

The bank earned N1.22 per share at the end of the third quarter, which is unchanged with the figure in the same period last year. It closed the 2017 financial year with earnings per share of N1.21 and paid a cash dividend of 25 kobo per share.