April 8, 2021/InvestmentOne Report

·         Net interest income of N58.88billion, down 4.20%q/q , 22.59%y/y      

·         Non-interest income of N52.56billion, up 0.21%q/q, down 12.53%y/y.

·         Profit before tax of N20.39billion, down 6.89%q/q, 2.05% y/y.

·         Profit after tax of N21.24billion, up 13.50%y/y, 12.97%y/y.

Weak NII and Higher OPEX Drag Earnings down

Recently, FBNH released its audited reported which showed a 6.89%q/q decline in PBT in Q4 2020. This was driven by a 4.20%q/q decline in Net Interest Income and 17.21% increase in OPEX. While Non-interest income was somewhat flat, loan impairment fell by 75.53%q/q in Q4 2020. We believe the decline in NII was due to weak Net Interest Margin (NIM) as the bank continued to grow its loan book. The decline in loan impairment was due to high base effect as the bank’s historical loan impairment levels were well above peers. The increase in OPEX was due to the higher regulatory cost recorded in Q4 2020.

On a y/y basis, PBT fell by 2.05% as a result of a 22.59% decline in Net Interest Income and 12.53% fall in Non-interest income which offset the impact of the 82.68% decline loan impairment and 3.69% decrease in OPEX. Overall the bank recorded a PBT of N20.39billion in Q4 2020. 

Gains on Investment Securities Support FY Performance

Looking at the FY numbers, the bank recorded a 10.01% decline in net interest income as Net Interest Margin declined to 6.1% in FY 2020 from 7.4% in FY 2019 in line with direction of interest rates in 2020. Non-interest income rose by 22.60% thanks to jump in income from investment securities (N48.08billion in FY 2020 vs N17.49billion in FY 2019) and 13.12% increase in net fees and commission. We believe the increase in investment securities may not be unconnected to the price appreciation in the fixed income space in 2020 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 68.60% in FY 2020 from 69.70% in FY 2019 as OPEX was somewhat stable, rising marginally by 0.45%. In the same vein, cost of risk fell to 2.4% in FY 2020 from 2.6% in 9M 2019, as the bank recorded a marginally decline in loan impairment (-0.97%y/y) due to the low impact of COVID-19 on the bank’s assets. Overall PBT rose by 11.18% y/y to N83.70billion in FY 2020. In terms of asset quality, NPL improved further as it fell to 7.70% from 9.9% in FY 2019. We believe this may be due to increased write-offs and rise in loan book (+19.70%y/y). 

Outlook

Going forward, while we expect the bank to restructure its loan book to account for the effect of COVID-19, we think asset quality may weaken in the near term as the impacts of the current pandemic linger. Elsewhere, we believe the recent increase in yields in the Fixed Income market should be positive for NIM and by extension support earnings in the near term.

We expect the success recorded in its Firstmonie Agent banking network which has grown to over 86,000 users to support its income from fees and commission and help to mobilize cheap deposit to the bank. In the same vein, we are of the view that the launching of the FirstMonie Agent Credit, a digital lending solution, should increase the bank’s retail lending in the near term. Furthermore, with the recent injection of additional tier 1 capital in Q2 2020 (CAR of 17.00% up from 15.50% at the end of FY 2019), we believe this should give the bank more buffers to weather the storm of the current pandemic.

Source: Company financials, Investment One Financial Services Research

Source: Company financials, Investment One Financial Services Research