Analysing the H1 2017 Performance of FBN Holdings Plc – A Comprehensive Report

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Economy: Healthier Leading Indicator

The Nigerian economy fully returned to a growth trajectory at the end of the first half of 2017.  This growth was as a result of buffering oil prices and improved oil production.  The cycle had completely receded from earlier negative reversals at the end of the second quarter of 2017, thus generating an expansion in Gross Domestic Product (GDP) by 0.55% in the same quarter. Earlier price pressure witnessed throughout 2016 had begun to soften as the effect of base year weaned.

Thus, the macro picture is already showing positive signs due to improvement in the health of leading indicators such as GDP, Purchasing Managers’ Index, and balance of payment, nominal currency and inflation. Regardless, the Monetary Policy Committee maintained a tight monetary cycle throughout the second quarter of 2017, as it focused on inflation and exchange rate stability.

Sustaining Resilience

FBNHoldings (FBNH) in Q2 2017 generated interest income of N117.6 billion, reflecting a 3.1% growth and 37.2% growth on a quarterly and yearly basis, respectively. This growth steams from improved macro condition coupled with slight increase in the cost of funds from 3.4% in Q1 2017 to 3.5% in Q2 2017. When compared to H1 2016, FBNH’s interest income grew by 37% to reach N231.7 billon in the second half of 2017.

The bank’s non-interest income[1] rose by 8.7% from N24.2 billion in Q1 2017 to N26.3 billion in Q2 2017.  Non-interest income on a year on year basis fell sharply by 46%, as a result of a high base and fizzling out of revaluation gain earlier experienced in 2016. Gross earnings at the end of the H1 2017 stood at N289billion reflective of an 8% growth on a year on year basis, thereby underlining the bank’s strong earning capacity.

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FBNH’s operating expenses fell by 8.6% from N55.7 billion in Q1 2017 to N50.9 billion in Q2 2017. However, the cost to income ratio of the bank has increased from 53.3% in Q1 2017 to 54.4% at the end of Q2 2017. In addition, FBNH has embarked on an aggressive loan recovery policy which will see it reclassifying its loan and give it ample room to clean up its balance sheet and strengthen stock taking.

FBNH’s operating profit in Q2 2017 fell to N15.5 billion against N19.9 billion in Q1 2017. Similarly, PAT reduced to N13.0 billion in Q2 2017 as against N15.7 billion in Q1 2017. The fall in operating profit and PAT was as a result of exhaustion in revaluation gains combined with slight deviation from earlier cost compression measures, thus making its bottom line more volatile.

FirstBank’s capital adequacy ratio (CAR) dipped from 17.8% in Q1 2017 to 17.6% in Q2 2017, still making it higher than the regulatory prudential ratio of 15%. At the same time the bank’s gearing ratio fell from 64.6% in Q1 2017 to 62.9 Q2 2017.

Certainly, the bank’s ability to leverage on its cost of risk and the depth of its deposit base will improve its earning capacity. It is also expected that as macro condition improves fused with stable oil prices such dynamics will provide the needed support for the bank’s loan recovery drive, given its high exposure to the oil sector.

At the same time it is important for the bank to improve its capital adequacy ratio, improve asset quality, cost-to-income ratio, sustain its aggressive loan recovery drive and more importantly improve synergy across all arms in order to bolster the non-interest income stream.

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