June 2, 2023/Cordros Report

FBN Holdings Plc (FBNH) released its 2022 full-year audited numbers this morning (02 June), which showed that the Holdco reported a 10.3% y/y decline in EPS for the period under review (2022FY: NGN3.74 vs 2021FY: NGN4.17). The decrease in the group’s earnings can be attributed to the lower income generated from the non-core income (-37.6% y/y) amid the impact of the loss allowance (NGN5.87 billion) taken on its total investment securities holdings issued by the Government of Ghana (GoG). Eventually, the board proposed a final dividend of NGN0.50/s (2022FY: NGN0.35/s), which translates to a dividend yield of 3.5% based on the last closing price of NGN14.40/s (01 June). 
 
Interest income grew by 49.6% y/y to NGN551.94 billion, reflecting the higher-yielding environment. Specifically, the group generated higher income from loans and advances to customers (+48.9% y/y to NGN403.62 billion), investment securities (+20.6% y/y to NGN91.88 billion) and loans and advances to banks (+158.3% y/y to NGN56.44 billion). Notably, we attribute the higher income from loans and advances to customers to strong risk asset creation (+31.5% y/y to NGN3.79 trillion) during the period under review.
 
In the same vein, interest expense advanced by 34.0% y/y to NGN188.69 billion, primarily driven by the higher fees expensed on customer deposits (+47.1% y/y to NGN117.20 billion), despite the improvement in its funding mix (CASA as at 2022FY: 84.8% vs 2021FY: 82.8%). Likewise, the bank incurred higher costs on its borrowings (+54.6% y/y to NGN48.51 billion) driven by the expansion of interest-bearing borrowing (+66.7% y/y to NGN675.44 billion).
 
The group was exposed to Ghana’s debt securities, which caused it to recognise an impairment charge of NGN5.87 billion on its holdings in GoG debt instruments. Among the tier 1 banks, FBNH seemingly has the lowest exposure to the GoG debt restructuring.
 
Unimpressively, non-interest income (NII) declined by 37.6% y/y to NGN227.18 billion, primarily triggered by the lower gains from investment securities (-28.1% y/y to NGN61.07 billion) and other income (-83.5% y/y to NGN25.75 billion). The aforementioned offset the gains from fees and commission (+1.1% y/y to NGN117.97 billion).
 
Further out, operating expenses grew slower by 8.9% y/y to NGN334.18 billion supported by the higher expenses incurred on NDIC (+826.2% y/y to NGN28.05 billion) and maintenance costs (+21.7% y/y to NGN42.96 billion), which outweighed the decline in personnel expenses (-8.8% y/y to NGN117.38 billion) and AMCON levy (-28.0% y/y to NGN39.76 billion). Subsequent to the higher opex than operating income (+4.2% y/y), the cost-to-income ratio (after accounting for LLEs) settled lower at 69.7% (relative to 66.7% in 2021FY).
 
Overall, profitability was pressured, with profit-before-tax declining by 5.3% year-on-year to NGN157.90 billion and profit-after-tax settling 9.8% y/y lower at NGN136.31billion, amid the higher income tax expense (+39.2% y/y NGN21.59 billion).
 
Comment: The performance of the group is underwhelming, particularly the lower income from non-funded income. However, we believe the growth in core income will be sustained following our expectations of a higher interest rate environment, supporting the group’s performance through 2023E. Our estimates are under review.