October 26, 2018/Cordros Update
FBNH released its 9M-2018 result yesterday, showing 30% y/y and 39% q/q decline in PAT to NGN11.43 billion in Q3-18.
- Gross earnings (GE) dropped 1% y/y, following a 9% decline in interest income (which makes up 76% of total GE). The decline in interest income stemmed from declines in interest earned from loans and investment securities. Interest expense in the quarter was 20% higher than the previous year, but 1% lower vs. the previous quarter. Asset yield printed at 11.7% (-60 bps y/y), while cost of funds was 10 bps higher y/y at 3.6%. This translated to a drop in NIM by 110 bps y/y to 7.7%.
- On the other hand, non-interest income grew by 32% y/y, largely on the back of an 18x growth in foreign exchange income, from NGN594million in Q3-17 to NGN10.9 billion in Q3-18. Growth in fees & commission also continued to impress, following continued growth in e-banking income (9M-18: +50.5% y/y). Contribution from the insurance business was also positive, as net insurance premium revenue grew positively by 73% y/y and 63% q/q.
- Loan impairment provision (-34% y/y, -15% q/q) continued to decline in the period, despite loan to customers growing by 4% vs. H1-18 (although still lower compared to FY-17 by 4%). The NPL ratio was lower on both q/q and y/y bases by 100 bps and 30 bps respectively. Similarly, cost of risk improved to 4.5%, from 5.6% in Q3-17, and 4.7% in H1-18.
- Total opex in Q3-18 rose 16% y/y and 8% q/q, weighing negatively on the bank’s earnings. As a result, cost to income ratio in the quarter spiked 14 ppts y/y and 9 ppts q/q to 65%, amidst decline in operating income (-9% y/y, -6% q/q).
- Furthermore, there was a drop in the bank’s CAR to 17.40%, from 18.1% in H1-18 and 17.7% in FY-17. This is attributable to the loss recorded in FVOCI financial assets (-NGN14.37 billion, vs. H1-2018: -NGN5.61 billion) deducted from equity — offsetting impact of the reduced initial adjustment for IFRS 9 (NGN28.49 billion, vs NGN38.84 billion in H1-18).
Comment: FBNH’s Q3-18 result is unimpressive in our view. Annualized, the NGN59.93 billion net profit reported as at 9M-18 is below Bloomberg consensus’ estimate for the full year by 4%. We do not expect a positive reaction from investors in today’s trading session. Our estimates are under review.
| Income statement (N’bn) | 9M-18 | 9M-17 | y/y | Q3-18 | Q2-18 | Q3-17 | y/y | q/q |
| Gross earnings | 441.45 | 438.93 | 0.58% | 148.14 | 154.46 | 150.31 | -1.44% | -4.09% |
| Interest income | 337.56 | 356.08 | -5.20% | 112.15 | 114.51 | 123.70 | -9.33% | -2.05% |
| Interest expense | (116.03) | (101.73) | 14.06% | (40.27) | (40.61) | (33.44) | 20.43% | -0.85% |
| Net interest income | 221.53 | 254.35 | -12.90% | 71.89 | 73.89 | 90.26 | -20.36% | -2.72% |
| Net insurance premium revenue | 10.44 | 8.05 | 29.69% | 4.40 | 2.69 | 2.54 | 72.80% | 63.24% |
| Fee and commission income | 62.67 | 54.28 | 15.45% | 21.01 | 22.49 | 17.52 | 19.90% | -6.57% |
| fee and commission expense | (10.70) | (9.09) | 17.70% | (4.08) | (3.41) | (3.18) | 28.36% | 19.77% |
| Net fee and commission income | 51.97 | 45.20 | 15.00% | 16.92 | 19.08 | 14.34 | 18.02% | -11.28% |
| Foreign exchange income | 23.85 | 5.60 | 325.78% | 10.91 | 8.32 | 0.59 | 1736.53% | 31.20% |
| Non-interest income | 82.76 | 65.71 | 25.94% | 27.51 | 33.85 | 20.88 | 31.71% | -18.74% |
| Total operating income | 314.73 | 328.11 | -4.08% | 103.79 | 110.44 | 113.69 | -8.71% | -6.02% |
| Loan impairment charges | (76.19) | (97.59) | -21.93% | (23.38) | (27.47) | (35.18) | -33.56% | -14.92% |
| Total operating expenses | (187.24) | (175.35) | 6.78% | (67.96) | (62.92) | (58.77) | 15.65% | 8.02% |
| Profit before income tax | 51.34 | 55.43 | -7.38% | 12.46 | 20.05 | 19.81 | -37.07% | -37.83% |
| Income tax expense | (6.39) | (9.59) | -33.36% | (1.04) | (1.31) | (3.45) | -69.96% | -20.72% |
| Profit after tax | 44.95 | 45.84 | -1.95% | 11.43 | 18.74 | 16.35 | -30.12% | -39.02% |