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 Adedapo Adesanya
Access Bank Plc, the banking subsidiary of Access Holdings Plc, has entered into a binding agreement with South African-based Bidvest Group Limited for the acquisition of 100 per cent equity stake in Bidvest Bank Limited.
The deal for the 24-year-old South African lender is due to be completed in the second half of 2025, upon regulatory approval.
This shows Access Bank’s further expansion plans in line with goals set by its late founder, Mr Herbert Wigwe.
The agreement to acquire 100 percent stake in Bidvest Bank reflects Access Bank’s commitment to strengthening its footprint in South Africa and consolidating on its position as the continent’s gateway to global markets as it seeks to optimise the benefits of recent acquisitions and accelerate its transition towards a greater focus on efficiencies.
Bidvest Bank, founded in 2000 is a niche and profitable South African financial institution providing a diverse range of services, including corporate and business banking solutions and diverse retail banking products.
As of its year ended June 2024, Bidvest Bank reported total assets equivalent of $665million and audited profit before tax of $20million.
Upon conclusion of this acquisition, Bidvest Bank will be merged with the bank’s existing South African subsidiary to create an enlarged platform to anchor the regional growth strategy for the SADC region.
This is coming just as the bank opened a new branch in Malta as part of efforts to focus on international trade finance after obtaining a banking licence from the European Central Bank (ECB) and the Malta Financial Services Authority (MFSA).
Access Bank said the licence marks a transformative milestone in bolstering Europe-Africa trade flows.
The Maltese branch was established by Access Bank UK Limited, the subsidiary of Access Bank Plc, which is also the subsidiary of Access Holdings Plc, which is listed on the Nigerian Exchange (NGX) Limited.
By Modupe Gbadeyanka
To strengthen Europe-Africa trade ties, Access Bank has opened a new branch in Malta. It will focus on international trade finance, employing approximately 30 people in its initial phase, with plans for controlled expansion over time.
It was learned that this Maltese branch was established by Access Bank UK Limited, the subsidiary of Access Bank Plc, which is also the subsidiary of Access Holdings Plc, which is listed on the Nigerian Exchange (NGX) Limited.
Access Bank Malta Limited commenced operations after obtaining a banking licence from the European Central Bank (ECB) and the Malta Financial Services Authority (MFSA).
Access Bank said the licence marks a transformative milestone in bolstering Europe-Africa trade flows.
Malta, a renowned international financial centre, and a gateway between the two continents, is strategically positioned to play a pivotal role in advancing commerce and fostering economic partnerships.
This strategic expansion into Malta enables The Access Bank UK Limited to leverage growing trade opportunities between Europe and Africa.
It underscores the organisation’s commitment to driving global trade, financial integration, and supporting businesses across these regions.
“By establishing operations in Malta, we will gain a foothold in a market that bridges European and North African economies, moving us one step closer to our goal of becoming Africa’s Gateway to the World.
“It further enhances our bank’s capacity to support clients with innovative solutions tailored to cross-border trade and investment opportunities,” the chief executive of Access Bank, Mr Roosevelt Ogbonna, stated.
“Europe has emerged as Africa’s leading trading partner, driven by initiatives such as the Economic Partnership Agreements between the EU and African regions and the African Continental Free Trade Area (AfCFTA).
“With Europe-Africa economic relations entering a new phase, The Access Bank Malta Limited is ideally positioned to deepen trade and meet the financing and banking needs of our clients in these expanding markets,” the chief executive of Access Bank UK, Mr Jamie Simmonds, commented.
Also speaking, the chief executive of Access Bank Malta, Renald Theuma, said, “Malta is uniquely positioned as a bridge between Europe and Africa, making it an ideal location for our subsidiary. This move allows The Access Bank Malta Limited to engage more closely with customers in Europe and deliver tailored financial solutions that drive growth and connectivity across both continents.”
By Adedapo Adesanya
The International Finance Corporation (IFC) and Goldman Sachs have announced a new partnership with African banks, including Nigeria’s Zenith Bank and Stanbic IBTC Nigeria to support the Goldman Sachs 10,000 Women initiative, a joint programme launched in 2008 to provide access to capital and training for women entrepreneurs globally.
The two Nigerian banks are part of nine financial institutions from across Africa which have agreed to join the 10,000 Women initiative committing to leverage the business education and skills tools the programme provides to create more opportunities for women entrepreneurs across the continent by providing access to business education.
Others banks include Stanbic Bank Kenya, Ecobank Kenya, Ecobank Cote d’Ivoire, Equity Bank Group, Banco Millenium Atlantico – Angola, Baobab Group, and Orange Bank.
Speaking on this, Ms Charlotte Keenan, Managing Director at Goldman Sachs said – “10,000 Women has had a powerful impact to date, but we know that there are more women to reach and more potential to be realized.
“We are delighted to partner with IFC to supercharge the growth of women-owned businesses across Africa, and mainstream lending to female business leaders. We remain committed to supporting entrepreneurs with the access to education and capital that they need to scale.”
Since 2008, the 10,000 Women initiative has provided access to capital and business training to more than 200,000 women in 150 countries.
“This expanded initiative marks a significant step forward in creating equitable economic opportunities for women in Africa, enabling them to build stronger, more resilient businesses and to realize their entrepreneurial goals,” said Ms Nathalie Kouassi Akon, IFC’s Global Director for Gender and Economic Inclusion.
Goldman Sachs’ 10,000 Women initiative complements the Women Entrepreneurs Opportunity Facility (WEOF), launched in 2014 by Goldman Sachs and IFC as the first-of-its-kind global facility dedicated to expanding access to capital for women entrepreneurs in emerging markets.
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