Gross earnings were up by 0.3% y/y, relative to our estimate of 0.7%, supported by the growth in income from investments in fixed income securities (+15.2% y/y to NGN91.8 billion), just as income from loans and advances from customers declined (-9.8% y/y to NGN122.1 billion).

Interest expense moderated (-0.9% y/y to NGN75.1 billion), driven by the decline in cost of borrowings, as the bank redeemed its 2020 Eurobond (USD300.0 million) as at the call date in August 2018. The bank announced that it would be redeeming its outstanding Eurobond instrument (USD450.0 million) on the call date (July 23 2019).

Consequent on the moderate growth in gross earnings, which offset the nominal value of the decline in interest expense, net interest income was down by 2.0% y/y. However, the significant decline in credit impairment charges (-58.1% y/y to NGN22.1 billion) was enough to boost operating income (ex-LLE), which settled 19.0% higher.

Operating expenses were up significantly by 24.3%, pressured by regulatory cost (+21.6% to NGN19.8 billion) and operational & Other losses (+415.7% to NGN11.0 billion), and led to the material deterioration in the Holdco’s cost-to-income ratio (CIR). The upward pressure on operating expenses was expected, primarily due to the increase in AMCON levy, as banks were directed to include off-balance sheet exposures in the calculation.

Given the significant increase in operating expenses, the bank’s CIR settled at 70.5%, from 56.5% in the prior year, relative to our estimate of 60.0%.

FBNH recorded PBT and PAT growth of 2.6% y/y and 5.4% y/y respectively, which remains broadly in line with our 2019E for PAT of 4.3% y/y, which we expect to be pressured by a marginally higher credit impairment charge than the current run-rate implies for 2019FY (+2.6% y/y).

In our view, the bank’s macroprudential ratios are subpar, with only liquidity ratio settling well above the regulatory limit (40.3% relative to 30.0% statutory limit). A further cause for concern comes from the bank recently announcing that it would be redeeming its outstanding Eurobond, stating the strength of its liquidity position. However, given the context of both its liquidity and capital adequacy positions (15.6% relative to 16.0% limit for D-SIBs), we view this decision as more related to a lack of US dollar denominated business opportunities. Given these macroprudential ratios, we expect the bank to seek to raise naira-denominated debt in H2:2019.

Conference call: The company will be holding a conference call at 3.00PM (GMT +1).  The teleconference call facility can be accessed by dialing: +234 1 277 6330 (Nigeria); 0800 279 7204 or +44 (0) 330 336 9411 (United Kingdom); +1 800 458 4121 or +1 323 794 2597 (United States); and 0800 980 520 or +27 11 844 6118 (South Africa) and then entering the following confirmation code: 7028810#

Comment: The Holdco’s number are broadly in line with our expectations, with only the material movement in the CIR as the meaningful deviation from our estimates. While we expect the Holdco’s performance will be better y/y at 2019FY, this will primarily be due to lower impairment charges, as we see limited opportunities for growth given macroprudential ratios. Our estimates are under review.