August 1, 2022/CSL Research

FBNH released H1 2022 unaudited numbers. Interest Income was up 40.6% y/y driven by growth in Interest Income on investment securities and Loans due to an improvement in earnings yield. Q/q, Interest Income was up 6.8% in Q2 2022 compared with Q1 2022 as loans grew stronger in Q2. Net Loans to customers were up 17.3% y/y in H1 2022, (6.0% at the end of Q1) compared with the December 2021 position. Earnings yield improved to 7.5% in H1 2022 from 6.8% in H1 2021. Interest Expense grew moderately, up 28.4% y/y and 0.4%q/q, resulting in a marginal growth in cost of funds to 1.9% in H1 2022 from 1.8% in H1 2021. Customer Deposits were up 7.8% in H1 2022 (5.0% in Q1 2022) compared with the December 2021 position. Overall, Net Interest Income grew strongly, up 47.3% y/y driving NIMs up to 5.1% in H1 2022 compared with 4.4% in H1 2021.  We have always maintained that Interest Income is likely to grow faster than funding cost with the rising rate environment, for banks like FBNH with a high level of low-cost funds. As of June 2022, term deposits only made up 18.5% of FBNH’s total deposits. 

Net Fee and Commission Income grew marginally y/y, up 1.7% but strongly grew q/q, up 13.6% in Q2 compared with Q1 2022.  The Q/q growth was driven by growth in e-banking fees, up 9.5% q/q, and a 21.8% q/q growth in Letters of credit commissions and fees. 

H1 2022 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) significantly declined q/q, down 44.1% in Q2 2022 compared with Q1 2022, driven mainly by a 46.4% decline in Net gains on sale of investment securities and a Net Loss from financial instruments at FVTPL of N3.5bn compared with a gain of N14.8bn in Q1 2022. 

H1 2022 impairment Charge declined 18.7% y/y to N21.7bn compared with N26.7bn in H1 2021, bringing H1 annualized Cost of Risk (COR) to 1.3% compared with 2.2% for H1 2021.  

OPEX increased significantly, up 21.9% y/y, almost in tandem with the 21.7% y/y growth in Total Operating Income, leading to a very marginal deterioration in the cost to income ratio (ex-provisions) to 68.0% in H1 2022 from 67.9% in H1 2021. Growth in Other Operating Expenses (up 32.7%) was the major contributor to OPEX growth, mainly driven by increased regulatory cost (AMCON charge, NDIC etc) which was up 71.0% y/y. We note the 58.1% growth in communication, light, and power which we believe is largely related to the high diesel cost. Maintenance cost also grew strongly, up 26.3% y/y. 

Pre-tax profit was up 45.3% y/y to N65.7bn but declined 20.0% q/q while Net profit was up 48.6% y/y to N56.5bn bringing H1 2022 annualized ROAE to 12.8% compared with 9.9% in H1 2021. Q/q, Net Profit was down 25.5%.

Our target price and rating are being reviewed. Current price: N11.00 /s.