• Net interest income of N71.8billion, down 2.7% q/q; down 20.4% y/y
• Non-interest income of N31.0billion, up 13.7% q/q, up 38.0% y/y
• Profit before tax of N12.5billion, down 37.9% q/q; down 37.1% y/y
• Profit after tax of N11.4billion, down 39.1% q/q; down 30.1% y/y 
  

FBN Holdings released its Q3 2018 financial results Thursday evening, recording a 4.2% and 8.4% q/q decline in PBT and PAT to N54.6billion and N46.6billion respectively, on the back of a 9.5% q/q decline in net interest income, a 13.7% q/q decline in non-interest income and 7.7% q/q rise operating expenses, despite a 14.9% q/q decline in impairment charges. 

Net-Interest Income Performance Reflects Lower Yield Environment

As we continue to see across banking names, FBN’s net interest income came in 2.7% q/q lower to N71.9billion despite net loans increasing 4% q/q. This was a reflection of the lower interest rate environment during the quarter and a 10bps q/q increase in Cost of Funds (CoF) to 3.6%.  

Rather Disappointing Non-Interest Income 

Similar to its peers, FBN’s non-interest income came in 13.7% lower q/q to c.N31.0billion, on the back of a 11.3% q/q waning in net fees and commission income despite a 31.2% rise in foreign exchange gains.  

However, on a y/y basis, non-interest income came in 27.0% higher to N90.5billion as net fee and commission income rose 15.0% higher y/y and fx gains shot up 325.8% y/y to N23.8bilion. 

Lower Impairment Charges; Higher Operating Expenses

As we continue to see across banking names, FBN’s impairment charges were down 14.9% q/q to N23.4billion. NPL remains sticky at 19.8% despite declining 100bps q/q. We highlight that is way ahead of the industry average thus far: 9.28%. However, the bank’s Cost of Risk declined 20bps q/q to 4.5% as provisioning declined 15% q/q. While we note that the current CoR is below management’s guidance of 6%-7% for FYE 2018, we note the likelihood of an uptick in CoR in Q4 2018 which may lead to a rise in loan impairment charges.

Elsewhere, opex was up 7.7% to N67billion, on the back of a 3.9% q/q increase in personnel expenses. As a result, cost-to-income went up 300bps q/q to 59.5%. We note that management has revised its FYE 2018 cost-to-income target from ˜55% to ~58% and looks to contain costs while boosting operating profit to achieve this.  

On a y/y basis, impairment charges were down 21.9% to N76.2billion, while total operating expenses were up 6.8% y/y. The latter, coupled with a 12.9% y/y decline in net interest income, resulted in the 7.4% and 1.9% y/y decrease in PBT and PAT to N51.3billion and N44.9billion respectively. 

Going forward, we note that management has revised its FYE 2018 NPL guideline from ˜15% to a range of 17%-18% on the back of the potential impact of currency devaluations on its FCY exposures. This may further hinder the bank’s ability to achieve single digit NPL ratio in 2019. Worthy of note is that without higher foreign currency translations on its FCY exposure, FBN’s NPL ratio would have come in at 17%. Finally, management highlighted optimism in resolving its Atlantic Energy exposures. However, we note that if FBN has to write off this loan, which is c.6% of gross loans, the impact would be colossal, if taken through the P&L or if taken through retained earnings, subject to IFRS 9. 

However, we are of the opinion that the positive credit growth witnessed in Q3 2018 should continue in Q4 2018, with management hinting towards extending credit to Manufacturing and Export sectors as well as to Individuals. However, with a Capital Adequacy (Bank) of 18.1% (versus 15% regulatory benchmark), we highlight the limited room for credit growth This should bode well for interest income in the near term. 

Source: Company financials, Investment One Financial Services Research

Source: Company financials, Investment One Financial Services Research