May 26, 2022/CSL Research

FBNH released its long-awaited FY 2021 AUDITED numbers. The group saw a significant jump in pre-tax profits (up 99.1% y/y to N166.7bn) mainly due to recoveries totaling N141.obn including the famous Atlantic Energy loan which had been written off. Though Net Interest Income weakened (down 9.3%y/y) due to lower earnings yield (down to 7.3% from 9.3% in 2020), the bank’s Fee and Commission Income growth remained strong. However, Impairment Charge grew significantly.

The group’s Net Interest Income declined in FY 2021 when compared with FY 2020 due to pressure on Interest Income because of lower yields. Interest Income declined 4.1% y/y in FY 2021 (6.3% higher than our forecast), mainly on the back of a decline in yields on investment securities on FVOCI. On the other hand, Interest Expense was up 5.7% y/y. However, cost of funds was down to 2.1% in December 2021 compared with 2.3% in the corresponding period of 2020. Overall, Net Interest Margin (NIM) was down to 4.5% in December 2021 from 6.1% in December 2020. 

Net Fee and Commission Income grew 24.4% y/y. The y/y growth in Fees and Commission was driven by a 23% growth in credit related fees, a 32% growth in Letters of credit fees and commissions, a 38.9% growth in Funds transfer and intermediation fees, a 30.2% growth in account maintenance fees, a 14,2% y/y growth in custodian fees, and a 28.8% growth in Brokerage and intermediations. E-banking fees remained resilient, up 15.8% y/y, suggesting increased transaction volumes. Except for money transfer commission, all other Fee Income lines showed y/y growth. 

FY 2021 Nm

Source: Company, CSL Research

Other Income (Foreign Exchange Income, Net Gains on Investment Securities, Net Gains or Loss on Financial Instruments held at FVTPL, Dividend Income, Other Operating Income) was up 169.0% y/y mainly due to a jump in Other Operating Income to N149.4bn compared with only N14.9bn. The growth in Other Operating Income was mainly due to recoveries totaling N141,0bn including recovery on the Atlantic Energy Ltd loan, which had been written off. The amount recognized was net of expenses incurred in relation to the recovery. Net gains/(losses) from financial instruments at FVTPL also grew significantly, up 125.7% y/y. This was driven mainly by fair value gain on derivatives and fair value gain on debt securities.

FY 2021 impairment Charge grew 48.3% y/y to N91.7bn compared with N61.8bn in FY 2020, bringing FY 2021 Cost of Risk (COR) to 3.2% compared with 2.5% for FY 2020 and significantly ahead of our estimate of 1.5%. The bank had reported Impairment Charge of N29.6bn in 9M 2021, implying a significant amount of Impairment Charge was booked in Q4 2021. 

OPEX increased moderately, up 14.2% y/y. The significant y/y growth in Total Operating Income (up 35.5% y/y) led to a significant improvement in the cost to income ratio (ex-provisions) to 56.4% in FY 2021 from 66.8% in FY 2020. We consider the growth in OPEX moderate considering a high inflationary environment. Growth in Personnel expenses (up 28.0% y/y) was the main driver of OPEX growth.  

Pre-tax profit was up 99.1% y/y while Net profit grew by 68.4% y/y to N151.1bn. FY 2021 ROAE improved to 18.4% compared with 12.6% in FY 2020.  Excluding N141bn in recoveries, FY 2021 ROAE comes to 1.2%. 

FirstBank Nigeria reported Capital Adequacy Ratio (CAR) of 17.4% compared with the current 15.0% minimum. 

The group’s management proposed a dividend of N0.35/s compared with N0.45/s proposed in 202o. FY 2021 dividend yield comes to 3.3% based on yesterday’s closing price of N10.55/s.

Our target price and rating are being reviewed. Current price: N10.55/s. (Price as of 25 May)

FBN Holdings will host a question-and-answer teleconference call with analysts and investors on the audited results for the full year December 31, 2021, and unaudited first quarter March 31, 2022, on Friday, June 3, 2022 at 3:00pm UK / 3:00pm Lagos / 10:00am New York / 4:00pm Johannesburg & Cape Town.