October 28, 2022/CSL Research

FBNH released 9M 2022 unaudited numbers. Interest Income was up 42.4% 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 23.2% in Q3 2022 compared with Q2 2022. Net Loans to customers were up 24.9% in 9M 2022 (17.3% at the end of H1) compared with the December 2021 position. Earnings yield improved to 8.1% in 9M 2022 from 7.0% in 9M 2021. Interest Expense on the other hand, grew moderately, up 24.4% y/y and 28.8%q/q, resulting in a marginal growth in cost of funds to 2.1% in 9M 2022 from 1.9% in 9M 2021. Customer Deposits were up 12.8% in 9M 2022 (7.8% in H1 2022) compared with the December 2021 position. Overall, Net Interest Income grew strongly, up 53.1% y/y driving NIMs up to 5.4% in 9M 2022 compared with 4.4% in 9M 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.

Net Fee and Commission Income grew marginally y/y, up 5.9% y/y and 5.1% q/q.  The y/y growth was driven mainly by growth in account maintenance fees, up 12.0%y/y, growth in Letters of credit commissions and fees (up 43.8%y/y) and growth in financial advisory fees (up 786.7%).

9M 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) declined 3.9% y/y but declined significantly in Q3 compared with Q2, down 83.1%q/q

9M 2022 impairment Charge was up 5.4% y/y to N36.7bn compared with N34.8bn in 9M 2021, bringing 9M 2022 annualized Cost of Risk (COR) to 1.5% compared with 1.8% for 9M 2021.

OPEX increased moderately, up 15.2% y/y, and much lower than the 28.0% y/y growth in Total Operating Income, leading to a significant improvement in the cost to income ratio (ex-provisions) to 65.0% in 9M 2022 from 72.2% in 9M 2021. Growth in Other Operating Expenses (up 26.6%) was the major contributor to OPEX growth, mainly driven by increased regulatory cost (AMCON charge, NDIC etc) which was up 29.2% y/y. Other line items that showed significant growth were communication, light and power, Insurance premium, rent and rates, Maintenance and Professional fees.

Pre-tax profit was up 99.3% y/y to N105.5bn and 36.2% q/q while Profit for the period grew 123.6% to N91.2bn bringing 9M 2022 annualized ROAE to 13.7% compared with 7.2% in 9M 2021. Q/q, Profit for the period was up 43.6% in Q3 compared with Q2.

First Bank Nigeria reports Capital adequacy of 15.6%. The bank needs to aggressively retain capital to meet the post Basel 3 (17.0%) minimum for systemically important banks.

Our target price and rating are being reviewed. Current price: N9.80 /s