FBN Holdings set on recovery path with N50bn profit in Q1

FBN Holdings Plc appears set on the path of recovery from a profit drop in 2022 to a leap of 54.4 percent in group after-tax profit to N50 billion in the first quarter (Q1) of 2023.

The bank has experienced a reversal from a sharp revenue slowdown — which was the major downside force last year — to a strong growth of 43.7 percent in gross earnings to N259.5 billion in Q1. This detracts from a major slowdown in gross income in 2022 to 6.3 percent increase to N805 billion at full year.

The Q1 interim financial report of the bank holding company for the period ended March 2023, shows that the revenue gain is driven by a rebound in non-interest earnings from a drop of about 44 percent at the end of 2022 to close flat at N37 billion in the quarter.

However, challenges still remain as non-interest income lines remain volatile and two of the three major cost lines of the bank — interest expenses and loan impairment charges, are consuming increased proportions of revenue.

This is unlike in the preceding financial year when interest expenses slowed down and net credit loss expenses dropped.

Interest expenses rose by 84.9 percent quarter-on-quarter to N67.8 billion in Q1, well ahead of an increase of 64 percent in interest income to N179.6 billion over the same period. Net interest income still grew by 53.6 percent to N111.8 billion over the period.

A bigger pressure from cost came from credit losses that jumped by 93 percent quarter-on-quarter to N16.9 billion in the quarter under review. Loan loses had dropped by 25 percent in 2022 to N68.6 billion.

Net interest income after loan impairment expenses grew by 48.2 percent to roughly N95 billion at the end of the quarter.

The recovering mood of non-interest income is driven by net gains on sale of investment securities, which advanced by 128 percent quarter-on-quarter to N33.3 billion at the end of Q1. This is a rebound from a drop of 28.4 percent to N22.4 billion at the end of last year.

Net fee and commission income also rose by 29.2 percent over the same period to N35.3 billion after closing flat at about N118 billion in 2022.

Net gains on financial instruments continued to disappoint with a drop from N14.8 billion in the same period last year to a loss of N2 billion in the first quarter. It also went down by 28 percent to N38.6 billion at the end of last year.

There was a loss of momentum in foreign exchange income, which dropped by 47.4 percent quarter-on-quarter to N3 billion at the end of Q1. The income line had jumped more than three times to over N22 billion at the end of the 2022 financial year.

Cost saving from operating expenses boosted the strength from non-interest revenue to support the improved profit delivery of the bank in the first quarter.

This is a change of direction from the preceding financial year when total operating cost grew ahead of gross income at 9 percent to almost N364 billion.

Total operating cost moderated relative to gross earnings at an increase of 20.6 percent quarter-on-quarter to N111.2 billion at the end of Q1. It claimed a reduced share of gross earnings at 42.8 percent, down from 51.1 percent in the same quarter in 2022.

The upside functions of rebuilding non-interest income and cost saving from total operating cost stretched out the bank’s profit margin from 17.9 percent to 19.3 percent over the review period.

How far the bank could sustain the upturn in the current financial year depends on the extent management can curb the volatility of non-interest earnings and extract growth from there, good enough to remedy the rising cost of funds and credit losses.