May 10, 2021/InvestmentOne Report
· Net interest income of N83.17billion, up 11.63%q/q , 2.05%y/y
· Non-interest income of N51.20billion, down 34.57%q/q, up 9.78%y/y.
· Profit before tax of N61.02billion, down 22.34%q/q, up 3.80% y/y.
· Profit after tax of N53.06billion, down 25.53%y/y, up 5.02%y/y.
.
Lower NII and Jump in Loan impairment Drag Earnings down
Recently, FBNH released its Q1 2021 result which showed a 7.39%q/q decline in PBT on the back of weak Net Interest Income (NII) and jump in loan impairment. As such, a 10.33%q/q decline in NII and a jump in Loan Impairment to N13.18billion from N3.92billion in Q4 2020 offset the impact of a 10.26%q/q increase in Non-interest income and 11.37%q/q decline in OPEX. We believe the decline in NII was due to weak Net Interest Margin (NIM) on the back of lower asset yields on short term securities. This is similar to the trend in most tier 1 banks, most of the bills holding of banks as the end of Q4 2020 were invested at significantly low rates. Non-interest income increased due to higher gains on sale of investment securities. The bank’s loan impairment increased due to weak asset quality in the quarter. The decline in OPEX was due to the lower operational losses recorded in the Q1 2021.
Weak y/y Earnings
On a y/y basis, PBT fell by 34.16% as a result of a 12.38% decline in Net Interest Income and 35.74% jump in loan impairment which offset the impact of the 6.28% increase in Non-interest income. Overall the bank recorded a PBT of N18.88billion in Q1 2021.
Elsewhere, Cost to income ratio rose to 69.60% from 65.10% and 68.60% in Q1 2020 and FY 2020 as OPEX rose by 2.41% y/y in the face of weak earnings. In the same vein, cost of risk rose to 2.30% from 1.90% in Q1 2020 on the back of the jump in loan impairment.
Asset quality deteriorated as NPL ratio fell to 7.90% from 7.70% in FY 2020. We believe this may be due to weak asset quality despite the rise in loan book (Net loan up 3.70%ytd).
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. While the recent corporate governance issue around the bank’s related party loan may be negative in the near term, we believe recent reconstitution of the bank’s board should improve its corporate governance in the medium to long term.
Nonetheless, we are concerned about the fall in the bank’s CAR, though still above the regulatory requirement of 15.00%, to 16.60% from 17.00% in FY 2020. However, given the status of the bank as one of the Systemically Important Banks (SIBs) with strong funding, liquidity profile and customer deposit base, we believe the bank should weather the storm of the current pandemic and corporate issue.
FBN HOLDINGS PLC Q1 2021 (YE: DEC) (N millions)
| ||||||
Q1 2021
| Q/Q
| Y/Y
| ||||
Interest Income
| 78,357
| -10.02%
| -25.31%
| |||
Interest Expense
| -25,564
| -9.37%
| -42.75%
| |||
Net Interest Income
| 52,793
| -10.33%
| -12.38%
| |||
Non-interest income
| 58,218
| 10.76%
| 6.28%
| |||
Profit before provisions
| 105,411
| -1.11%
| -4.16%
| |||
Loan Impairment charges
| -13,175
| 236.01%
| 35.74%
| |||
Total Opex
| -73,331
| -11.37%
| 2.41%
| |||
PBT
| 18,884
| -7.39%
| -34.16%
| |||
Tax
| -3,285
| -487.84%
| -40.70%
| |||
Tax rate
| 17.4%
| 2155bps
| -192bps
| |||
PAT
| 15,599
| -26.55%
| -32.59%
| |||
Source: Company financials, Investment One Financial Services Research
Q1 2021 BANKS COMPARISON SHEET
| |||||||
NGN billion (unless stated otherwise)
|
| UBA
| GTB
| Zenith
| Access
| FBNH
| |
Key Income Statement Figures
| Gross Earnings
| 155.40
| 106.17
| 157.31
| 222.14
| 136.60
| |
Net Interest Income
| 74.38
| 54.43
| 83.17
| 93.96
| 52.80
| ||
Non-interest Income
| 32.27
| 45.86
| 51.20
| 78.34
| 52.60
| ||
Total Expenses
| 64.45
| 39.78
| 69.49
| 91.50
| 73.30
| ||
Loan Impairment Charges
| 2.03
| 1.86
| 3.86
| 12.54
| 13.20
| ||
Profit Before Tax
| 40.58
| 45.55
| 61.02
| 60.05
| 18.90
| ||
Y/Y PBT Growth
|
| 24.00%
| -9.03%
| 3.80%
| 29.72%
| -34.10%
| |
Dividend (Kobo per share)
| Nil
| nil
| nil
| nil
| nil
| ||
EPS (kobo per share)
| 1.04
| 1.60
| 1.69
| 1.49
| 0.43
| ||
Key Balance Sheet Figures
| Total Assets
| 7,892
| 4,993
| 8,683
| 9,054
| 7,836
| |
Total Liabilities
| 7,130
| 4,155
| 7,591
| 8,261
| 7,071
| ||
Total Equity
| 762
| 838
| 1,092
| 793
| 765
| ||
Key Ratios
| Net Interest Margin
| 4.87%
| 7.20%
| 6.00%
| 6.40%
| 4.60%
| |
Cost of Fund
| 2.01%
| 0.83%
| 1.10%
| NA
| 1.60%
| ||
Cost to Income
| 60.44%
| 42.56%
| 53.20%
| 55.76%
| 69.60%
| ||
NPL ratio
| NA
| NA
| 4.20%
| 4.00%
| 7.90%
| ||
Liquidity (bank level)
| NA
| NA
| 45.00%
| 48.30%
| NA
| ||
Cost of Risk
| 0.29%
| 0.45%
| 0.50%
| 1.33%
| 2.30%
| ||
Capital adequacy ratio (bank level)
| NA
| NA
| 21.10%
| 22.18%
| 16.60%
| ||
ROAE
| 20.53%
| 22.06%
| 19.20%
| 27.22%
| 8.20%
| ||
ROA
| 1.96%
| 3.67%
| 2.50%
| 2.35%
| 0.80%
| ||
Source: Company financials, Investment One Financial Services Research
