August 7, 2020/InvestmentOne Report
Net interest income of N71.02million, up 17.87%q/q , up 1.41%y/y
· Non-interest income of N30.36billion, down 38.95%q/q, up 7.47%y/y.
· Profit before tax of N12.73billion, down 55.60%q/q, down 31.11% y/y.
· Profit after tax of N23.76billion, down 7.54%y/y, up 49.93%y/y.
Jump in Impairment Weakens Earnings
Recently, FBNH reported a 55.60%q/q decline in PBT in its Q2 2020 result. This was driven by the jump in impairment charges reported in the quarter which rose by 115.81%q/q to N20.95billion. The jump in impairment may not be unconnected to the repricing of assets to reflect the impact of COVID-19. Elsewhere, we highlight that Net Interest Income (NII) increased by 17.87%q/q, while Non-interest Income declined by 37.28%q/q in Q2 2020. We believe the drive to boost loan book could have supported the bank’s NII as asset yield remained weak in Q2 2020. However, the fall in bank’s cost of funds in line with the current interest rate environment has supported net interest margin which improved to 6.8% at the end of Q2 2020 from 6.3% in Q1 2020. Non-interest income was negatively affected by the losses on FX trading and other investment securities despite the improvement in net fees and commission.
On a y/y basis, PBT was down by 31.11% as a result of the jump in impairment due to the impact of the current pandemic on asset quality. NII was somewhat flat having risen by 1.41% while Non-Interest income rose by 2.33%. Overall the bank recorded a PBT of N12.73billion in Q2 2020.
Impressive Q1 Performance Flatters H1 2020 Numbers
Looking at the H1 numbers, the bank recorded a 7.4% decline in net interest income as Net Interest Margin declined to 6.8% in H1 2020 from 7.5% in H1 2019. Non-interest income rose by 40.4% thanks to jump in income from investment securities (N26billion in H1 2020 vs N3.75billion in H1 2019) and 16.41% increase in net fees and commission. We believe the increase in investment securities may not be unconnected to the buy interest in the fixed income space while improvement in fees and commission may be due to the increase in transactions on the banks’ e-channels platform.
Better Cost Management
Elsewhere, Cost to income ratio improved to 65.8% in H1 2020 from 70.3% in H1 2019 as OPEX was somewhat flat, rising marginally by 0.90%. However, cost of risk jumped to 3.1% in H1 2020 from 2.2% in H1 2019, as the bank recorded a jump in credit losses due to the impact of COVID-19. Overall PBT rose by 14.26% y/y to N41.41billion as impressive Q1 results offsets the weak performance recorded in Q2 2020.
Asset quality improved further as NPL fell to 8.8% from 9.9% in FY 2019 and 14.5% in H1 2019. We believe this may be due to increased write-offs and rise in loan book (+7.7%YTD).
Outlook Remains Uncertain
Going forward, while we expect the bank to restructure its loan book (up to 15% from 6% in FY 2019) to account for the effect of COVID-19, we think asset quality may weaken in the near term as the impact of the current pandemic lingers. Similarly, we expect credit losses to continue to increase as the bank accounts for more loan impairments in the near term. While we expect asset yield to remain weak, we think cost of funds should fall as the bank adjusts for the effect of the last MPR cut on interest on Savings deposits. As such, we expect net interest margin to remain somewhat stable.
We expect the success recorded in its Firstmonie Agent banking network which has grown to over 59,000 users to support its income from fees and commission and help to mobilize cheap deposit to the bank. In the same vein, with the recent devaluation, we see potential extra earnings for FBNH given its net positive position in major foreign currencies (Net Positive FCY of N94billion based on our estimate from its FY 2019 result). Furthermore, the bank strengthened its capital buffer by injecting additional Tier 1 capital (N25billion from divestment proceeds and others excluding profit for the year) to boost its Capital Adequacy Ratio to 16.5% from 15.6% in H1 2019 and 15.5% in Q1 2020. We believe this should give the bank more buffers to weather storm of the current pandemic.
FBN HOLDINGS PLC H1 2020 (YE: DEC) (N millions) | |||||||||
Q2 2020 | Q/Q
| Y/Y
| H1 2020 | Y/Y
| |||||
Interest Income | 102,512 | -2.28%
| -4.40%
| 207,417 | -4.31%
| ||||
Interest Expense | -31,491 | -29.47%
| -15.34%
| -76,142 | 1.44%
| ||||
Net Interest Income | 71,021 | 17.87%
| 1.41%
| 131,275 | -7.35%
| ||||
Non-interest income | 30,364 | -38.95%
| 7.47%
| 80,103 | 46.76%
| ||||
Profit before provisions | 101,385 | -7.83%
| 3.15%
| 211,378 | 7.70%
| ||||
Loan Impairment charges | -20,947 | 115.81%
| 153.60%
| -30,651 | 38.65%
| ||||
Total Opex | -67,566 | -5.64%
| -5.58%
| -139,173 | 0.90%
| ||||
PBT | 12,733 | -55.60%
| -31.11%
| 41,415 | 14.26%
| ||||
Tax | -231 | -95.83%
| -94.53%
| -5,771 | -22.67%
| ||||
Tax rate
| 1.8%
| -1750bps
| -2103bps
| 13.9% | -666bps
| ||||
PAT | 23,762 | -7.54%
| 49.93%
| 49,463 | 56.33%
| ||||
Source: Company financials, Investment One Financial Services Research
H1 2020 BANKS COMPARISON SHEET |
| |
NGN billion (unless stated otherwise) | FBNH | |
Key Income Statement Figures | Gross Earnings | 296.40 |
Net Interest Income | 131.30 | |
Non-interest Income | 80.10 | |
Total Expenses | 139.20 | |
Loan Impairment Charges | 30.70 | |
Profit Before Tax | 41.40 | |
Y/Y PBT Growth
| 14.30%
| |
Dividend (Kobo per share) | nil | |
EPS (kobo per share) | 2.72 | |
Key Balance Sheet Figures | Total Assets | 7,130 |
Total Liabilities | 6,426 | |
Total Equity | 704 | |
Key Ratios | Net Interest Margin | 6.80% |
Cost of Fund | 2.80% | |
Cost to Income | 65.80% | |
NPL ratio | 8.80%
| |
Liquidity (bank level) | 30.60% | |
Cost of Risk | 3.10% | |
Capital adequacy ratio | 16.50% | |
ROE | 14.50% | |
ROA | 1.50% | |
Source: Company financials, Investment One Financial Services Research