June 2, 2023/CSL Research
After a long wait, FBNH finally released FY 2022 audited numbers. Interest Income was up 49.6% y/y and 11% ahead of our forecast, driven by growth in Interest Income on Loans and advances due to an improvement in earnings yield. Net Loans to customers were up 31.5% y/y in FY 2022. Earnings yield improved to 8.8% in December 2022 from 7.3% in December 2021.
Interest Expense also grew significantly, up 34.0% y/y and 15.8% ahead of our forecast, resulting in a marginal growth in cost of funds to 2.3% in FY 2022 from 2.1% in FY 2021. Customer Deposits were up 21.8% y/y. Overall, Net Interest Income grew strongly, up 59.2% y/y driving NIMs up to 5.8% in FY 2022 compared with 4.5% in FY 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 December 2022, term deposits only made up 15.2% of FBNH’s total deposits.
Net Fee and Commission Income grew marginally y/y, up 1.1% and came in 6.8% below our forecast. Credit related fees showed the strongest y/y growth (up 35.6% y/y) while funds transfer and intermediation fees showed the steepest decline (down 47.0% y/y).
| FY 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 significantly y/y, down 56.0% in FY 2022 compared with FY 2021. The decline was mainly due to lower recoveries of N13.7bn in December 2022 compared with N141.0bn in December 2023.
FY 2022 impairment Charge declined 25.2% y/y to N68.6bn compared with N91.7bn for FY 2021, bringing FY 2022 Cost of Risk (COR) to 2.0%, 50bps higher than our 1.5% forecast. FBN Nigeria’s subsidiary in Ghana held investments in debt securities of N6.27billion(GHS 117million) that were impaired because of a significant increase in credit risks. The Group exchanged N8.86bn (GHS 165million) of its existing Government of Ghana bonds for an equivalent amount of twelve new bonds worth N6.3bn. Overall, the Ghana DDE had minimal impact on FBN’s overall impairment.
OPEX grew moderately, up 8.9% y/y. The opex growth compared with a marginal decline in Total Operating Income led to a deterioration in the group’s cost to income ratio (ex-provisions) to 61.7% for FY 2022 compared with 56.4% in December 2021. Growth in Operating Expenses (up 23.3%) was the major contributor to OPEX growth, mainly driven by significant increases in maintenance, insurance premium, legal and other professional fees, communication, light and power, operational and other losses, and, other operating expenses.
Pre-tax profit was down 5.3% y/y to N157.9bn while Net profit was down 9.9% y/y to N136.2bn bringing FY 2022 ROAE to 14.5% (in line with our forecast) compared with 18.6% in FY 2021.
The bank’s management proposed final dividend of N0.50/s implying dividend yield of 3.6% based on yesterday’s closing price of N14.00/s
We have a buy recommendation on the stock and a target price of N18.11/s. Current price: N11.00 /s
FBN Nigeria reports Capital Adequacy Ratio (CAR) of 16.8% for FY 2022.
