Banking
FBN Holdings Plc: Lacklustre Performance Across Income Lines
By Cordros Research
First Bank of Nigeria Holdings Plc (‘’FBNH’’) released unaudited Q2-17 results few days ago, wherein gross earnings grew marginally by 4.63% (down 8.01% y/y and 66 bps below our estimate), while PBT and PAT contracted 22.50% q/q (-35.09% y/y) and 18.64% q/q (-13.15% y/y), respectively.
The contraction in earnings broadly reflects poor performance across key line items; interest income grew slightly by 3.62% (57 bps below our estimate), while NIR declined 55 bps (-68.16% y/y) to miss our estimate by 7.99%.
On the other hand, the impressive growth in net insurance premium (+126.56% q/q and 95.00% y/y) is worthy of note, albeit inconsequential to offset the sanguine performance of the major income line items.
NIR contracted marginally q/q, as significant declines in dividend income (-78.43% q/q and -56.22% y/y), net gains on foreign exchange income (-22.35%q/q and 95.75% y/y) – reflecting the limited leg-room for FX related gains in Q1 due to the relative stability of the NGN – and a net loss on investment securities offsets the slight improvement in net fee income (+1.96% and -0.84% y/y) and the surge in net gains on financial instruments (+149.21% q/q and -953.21% y/y) – due to impressive gains on derivative instruments.
The marginal growth in funding income reflects the decline in yields on the bank’s portfolio of investment securities (-6.50% q/q), despite 11.08% growth in loans and advances to customers. In the same vein, interest expense rose 1.90% q/q (+46.26% y/y), attributable to the 14.26% growth in interbank placements, which was muted by the bank’s improved deposit mix – with CASA share of deposits representing c.56% of total deposit.
Overall for H1-17, gross earnings rose 7.73% y/y (34 bps below our estimate), buoyed by impressive growth in interest income (+37.34% y/y) – translating to annualized asset yield expansion of 241 bps y/y to 12.11% – and net insurance premium (+56.91% y/y), offsetting the decline in NIR (-50.47% y/y and 3.07% q/q).
Interest expense (+58.27% y/y) rose significantly, largely due to the surge in borrowing expenses by 49.26% (total borrowings rose 14.83% y/y and 21.16% compared to FY-16 due to the N60.56 billion facility secured from AFDB in January 2017), translating to a 54 bps y/y expansion in annualized cost of funds to 2.94%. However, the impressive asset yield more than offsets the funding costs, resulting in 163bps NIM expansion to 8.83% (annualized).
Over H1-17, the asset quality deterioration rhetoric persisted. Despite 80 bps contraction in NPL to 22%, cost of risk remains elevated, rising 170 bps to 8.20% (annualized). Though provisioning declined 10.74 y/y, reflecting the 9.02% reduction in specific impairment, it rose 16.54% over Q2-17 due to the 17.57% q/q increase in specific impairment. However, noteworthy is the 75.89% y/y growth in net recoveries from loans previously written off, which we believe reflects the gradual improvements in the general commerce and manufacturing sectors from increased FX liquidity.
FBNH reported CAR of 17.8% for the bank in FY-16 and 18.1% for Q1-17, relative to both periods CAR contracted to 17.6% in H1-17, though still largely above the required regulatory minimum of 16% for systemically important banks, the 50 bps contraction over Q2 leaves a lot to question.
Overall, operating income declined 2.58% y/y in H1 (-18.15% y/y and +5.26% q/q in Q2-17) 60 bps below our estimate. Gross opex rose 11.76% y/y (+9.38% y/y and 14.15% q/q in Q2-17) 2.88% above our estimate, following hikes in operating expenses (+22.98% y/y), insurance claims (+32.68%), and depreciation expenses (+6.15% y/y), while personnel expenses (-1.79% y/y) contracted marginally.
Consequently, cost to income ratio and annualized operational leverage of 54.37% (47.39% in H-16) and 4.8x (4.5x in H1-16) beat our 52.53% and 4.6x estimates, respectively.
Overall, PBT and PAT declined y/y by 22.36% and 17.76% y/y, respectively.
Parsing through the balance sheet, FBNH’s loan book declined 3.75% y/y (+7.95% from FY-16 level), while the holding of investment securities increased 28.32% y/y (+11.79% from FY-16 level), not surprising, given the attractive yields on fixed income securities. On the other hand, deposits rose marginally by 2.06 y/y and 1.26% over FY-16 – largely driven by the 3.88% y/y growth in CASA deposits.
For the rest of 2017, we expect interest expense will remain elevated, as liquidity pressure (liquidity ratio was down to 50.4% in H1-2017, from 55.9% and 52.7% in H1-16 and FY-16, respectively) persists, and with the US Feds rate hike impact on the LIBOR further compounding the already stretched LCY interest rate.
Although we expect the re-pricing of assets, higher yields on investment securities, and FX interest income to support NIM, risk asset creation will remain subdued as the bank takes strategic steps to clean its loan portfolio.
On impairment charges, the bank’s restructuring of some FCY obligations reflected in the contraction in NPL during the period, we expect this to contract further as the bulk of the upstream oil and gas reclassification reflects in the balance sheet, resulting in lower provisioning by FY-17 in line with our previous forecast.
Based on our last TP of N5.37, implying 10.09% downside from last week’s close price of N5.97, we have a SELL recommendation on the stock. Our estimates are under review.
By Modupe Gbadeyanka
About N3.6 trillion has been repaid to the Central Bank of Nigeria (CBN) by the Asset Management Corporation of Nigeria (AMCON) since its inception in 2010.
This information was revealed by the chief executive of AMCON, Mr Gbenga Alade, during a media parley to update the press on the activities of the agency.
Mr Alade said at the moment, the organisation still owes the central bank about N3 trillion for toxic assets of banks in the country.
He praised the organisation for its asset recovery drive, stressing that when compared with others across the world, Nigeria has done well.
“It is important to stress that the corporation has done tremendously well, especially when compared to other notable government-owned Asset Management Corporations around the world.
“Based on the balance at purchase, AMCON outperformed other Asset Management Corporations all over the world by achieving over 87 per cent in recoveries despite the unique challenges associated with debt recovery in Nigeria.
“The Malaysian Danaharta, which is adjudged one of the best performing Asset Management Corporation’s, only achieved 58 per cent. The Chinese Asset Management Corporation, despite its stricter laws, achieved just 33 per cent.
“Only the Korean Asset Management Corporation (KAMCO), South Korea, has achieved more recoveries than AMCON, with about 100 per cent. This was due to their brute force with which they chased the obligors.
“Despite KAMCO’s recovery records, the agency is still operational to date with slight realignments in its mandate.
“Other noted Asset Management Corporations that have transitioned into a perpetual institution of the various governments include, China Asset Management Company, Federal Deposit Insurance Corporation (FDIC) USA, and KFW Germany.
“So, gentlemen, without sounding immodest, AMCON has done well, and we will not relent until all the outstanding debts are fully realized,” Mr Alade stated.
On the financial performance of AMCON, he said last year, the firm posted a revenue of N156.25 billion and operating expenses of N29.04 billion, while for the 2025 fiscal year should be a revenue of N215.15 billion and operating expenses of N29.06 billion.
By Modupe Gbadeyanka
One of the non-interest banks in Nigeria, The Alternative Bank (AltBank), has opened a new branch in Effurun, Delta State.
The new office will serve the Edo-Delta region and provide purposeful banking and real financial empowerment for individuals, entrepreneurs, and businesses, a statement from the firm stated.
The lender disclosed that the Effurun branch is a bold move in its mission to reshape banking in Nigeria.
The launch was graced by key dignitaries, including the Ovie of Uvwie Kingdom, Emmanuel Ekemejewa Sideso Abe I; the Chairman of Uvwie Local Government, Anthony O. Ofoni, represented his vice, Andrew Agagbo; and the Special Adviser to the Governor of Delta State on Community Development, Mr Ernest Airoboyi; amongst others.
The Divisional Head for South at The Alternative Bank, Mr Chukwuemeka Agada, emphasised the institution’s commitment to Warri and its surrounding communities.
“By establishing a presence here, we are initiating a transformation in the way banking serves the people of Delta. Our purpose-driven approach ensures that customers’ financial goals are not just met but exceeded,” he stated.
“This branch represents our pledge to empower Warri’s dynamic businesses and families, providing them with the tools to grow without compromise,” Mr Agada added.
“We understand the heartbeat of this community, and we are excited to integrate our bank into the fabric of this dynamic region,” he stated further.
On his part, the representative of the Ovie, Mr Samuel Eshenake, challenged the bank to facilitate development and employment within the Effurun community.
The Regional Head for Edo/Delta at The Alternative Bank, Mr Akanni Owolabi, embraced this challenge, pledging that the bank will work sustainably to drive local commerce.
“At The Alternative Bank, we are committed to being an active partner in the development of Effurun. We see this branch as a catalyst for creating opportunities, driving employment, and supporting the growth of local businesses.
“Our mission is to empower this community, ensuring that every step forward is one of progress, prosperity, and shared success.”
By Aduragbemi Omiyale
A partnership aimed to enable seamless, real-time and secure transactions for cardholders across Africa and the rest of the world has been entered into by Payattitude and PAPSSCARD, the card scheme initiative of the Pan-African Payment & Settlement System (PAPSS).
The collaboration will allow Payattitude cards issued by banks and other deposit-taking institutions to be co-branded with PAPSSCARD, Discover, Diners and Pulse for acceptance across their networks in Nigeria, Africa and worldwide.
As an initiative of the African Export-Import Bank (Afreximbank) and a key financial infrastructure supporting the African Continental Free Trade Area (AfCFTA), the PAPSSCARD scheme will facilitate instant cross-border payments in local currencies.
“This partnership reflects our commitment to cross-enterprise alliances and enabling inclusive, efficient, and borderless payments across Africa and the world
“With Payattitude, Nigerian cardholders and financial institutions can now enjoy the benefits of a Nigerian card that can be used worldwide,” a director at Payattitude, Dr Agada Apochi, said.
The acting chief executive of PAPSSCARD, Mr John Bosco Sebabi, said the aim is “to connect African payment ecosystems, reduce the cost and inefficiencies of cross-border payments, and strengthen African sovereignty over payments infrastructure.
“Collaborating with Payattitude, a key innovator in Nigeria’s payment space, represents a significant step towards a more unified African payment landscape.”
The chief executive of PAPSS, Mr Mike Ogbalu, said, “By bringing together PAPSSCARD’s robust cross-border payment capabilities with Payattitude’s leadership in the Nigerian digital payments, we are taking tangible steps toward building a single African market where individuals and businesses can transact easily and securely, both within and beyond Africa.”
Payattitude is the first-in-kind Nigerian Payment Scheme to pioneer multibank App and USSD Code *569#.
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