Slowdown in Q2 limits FBN Holdings’ H1 profit to N56bn

FBN Holdings Plc lost much speed on earnings growth in the second quarter and its 107 percent profit advance in the first quarter cooled off to 7.5 percent in the second. Quarterly profits went down from N32 billion in the first quarter to N24 billion in the second, summing up to N56.5 billion profit at half year.

The bank’s half-year earnings reports at the end of June 2022 show that revenue growth equally lost momentum from 32.2 percent in the first quarter to 12.2 percent quarter-on-quarter in the second quarter. Gross earnings amounted to N176.2 billion for FBN Holdings in the second quarter, down from N180.5 billion in the first quarter. 

Two major revenue disappointments caused the slowdown that happened in the second quarter. The first is the occurrence of a net loss of N3.5 billion on financial instruments, a huge drop from a net gain of over N19 billion in the same quarter in 2021.

The second is a drop of 73.4 percent in other operating income to N4.5 billion over the same period. 

The revenue weakness from the two income lines was however partly remedied by major increases in foreign exchange income and net gains on sale of investment securities. Foreign exchange income jumped about six times from negative N2.2 billion to N10.8 billion quarter-on-quarter. 

Net gains on sale of investment securities rose more than two times to N7.8 billion over the same period. Further strength on the side of earnings came from interest income, which is maintaining a strong growth so far this year at 41.4 percent quarter-on-quarter in the second quarter to almost N117 billion. This is ahead of the N109 billion interest income recorded in the first quarter.

Costs generally came under control in the second quarter but the weight of revenue weakness eroded profit margin. Non-interest income dropped by 20 percent to N59.3 billion quarter-on-quarter in the second quarter compared to a 22 percent increase in the first quarter. 

The drop in non-interest income resulted in a decline in profit margin from 14.3 percent in the same quarter last year to 13.7 percent in the second quarter of the current year and the slowdown of profit growth in the second quarter.

The year-on-year reading shows gross income of over N359 billion for FBN Holdings at the end of June 2022, which is an increase of 22.4 percent. This remains one of the highest revenue improvements for the bank since 2013. Revenue is growing by double digits for the second year since 2017 after 28 percent increase to N757.6 billion at the end of 2021. 

Leading revenue growth is foreign exchange income, which advanced from insignificance at the same period last year to N16.5 billion at half year. This is followed by interest income that grew by 40.5 percent year-on-year to N226.4 billion over the period.

Interest earnings are maintaining a rebound this year for the first time in four years after a sustained drop from an all-time peak of N469.6 billion in 2017 to N369 billion in 2021. 

Revenue weaknesses recorded in the second quarter showed up in the half year position. Net loss on financial instruments in the second quarter led to a drop by one-half in the income line to N11.3 billion at half year. Also, other operating income dropped by 47 percent to N9.2 billion year-on-year.

On the side of cost, FBN Holdings has got all its three main cost components under control so far this year. Interest expenses have slowed down from growing ahead on interest income to a moderated growth.

At N73.4 billion, interest cost grew by 28.4 percent at half year compared to 40.5 percent rise in interest income. This also compares to 43 percent increase in interest expenses in the first quarter.

With a step up in interest income and a slowdown in interest expenses, the bank raised net interest income by over 47 percent year-on-year to roughly N153 billion at the end of June 2022.

Net impairment charge on financial assets maintained a downward movement, dropping by 23 percent year-on-year to N10.4 billion. The third major cost line of the bank, operating expenses, also moderated slightly at an increase of less than 22 percent year-on-year to almost N186 billion at half year.

The all-around cost moderation diluted the drop in non-interest earnings in the second quarter and kept profit growing albeit a sharp slowdown at 47 percent year-on-year to N56.5 billion at half year. Net profit margin is improved from 13 percent in the same period last year to 15.7 percent at half year, down however from 17.9 percent at the end of the first quarter.