July 21, 2023/Cordros Report

FBN Holdings Plc (FBNH) published its unaudited H1-23 financial statements after the close of business yesterday, reporting a remarkable growth in its EPS (+234.8% y/y) to NGN5.19/s (vs NGN1.55/s in H1-22). The group’s earnings growth in the period was supported by the increase across the funded (+69.3% y/y) and non-funded (+114.0% y/y) income lines.

Interest income rose markedly by 69.3% y/y to NGN383.29 billion, partly reflecting the elevated yield environment as the group’s earnings yield settled at 9.4% (relative to 7.5% in H1-22). Specifically, the group recorded higher income from investment securities (+127.5% y/y), loans & advances to banks (+53.8% y/y) and customers (+53.3% y/y). Away from the elevated yield environment, we attribute the higher funded income to the increase in FBNH’s interest earning assets – loans & advances to customers (+38.9% YTD to NGN5.26 trillion) and investments securities (+39.8% YTD to NGN3.64 trillion) – as of H1-23.

Similarly, interest expense grew by 98.7% y/y to NGN145.96 billion, triggered primarily by the 109.7% y/y surge in the cost incurred on customers’ deposits. Despite the slight improvement in the group’s CASA mix (H1-23: 81.5% vs H1-22: 80.2%), we highlight that the higher interest rate in the environment and the growth in deposits from customers (+26.9% YTD to NGN9.04 trillion) spurred the higher costs on deposits. Aside from the erstwhile, higher costs were incurred on the deposit from banks (+122.4% y/y) and borrowings (+24.3% y/y). Subsequent to the faster growth in interest income than expenses, net interest income grew stronger by 55.2% y/y to NGN237.33 billion.

Impressively, the Holdco’s non-interest income (NII) rose by 114.0% y/y to NGN258.12 billion, driven by the spike in net gains on financial instruments (+1938.4ppts y/y to NGN229.74 billion) reflecting the substantial FX gains induced by the recent FX market liberalisation. Additionally, FBNH recorded higher gains from fees and commissions (+1.7% y/y to NGN58.37 billion) and net gains on investment securities (+4.6% y/y to NGN22.4 billion). The growth in the funded income supported by the significant growth in NII drove the increase in operating income (+73.9% y/y to NGN437.82 billion).

Further down, operating expenses rose by 24.5% y/y following the increase in regulatory costs – AMCON levy (+18.4% y/y to NGN62.12 billion) and NDIC (+6.0% y/y to NGN7.26 billion) – and personnel expenses (+17.9% y/y to NGN65.22 billion). Given the operating income growing faster than operating expenses, the Holdco’s cost-to-income ratio (after accounting for LLEs) improved to 52.9% (vs H1-22: 73.8%).

The HoldCo’s profit before tax grew by 213.1% y/y to NGN206.26 billion. FBNH’s ROAE and ROAA ultimately settled at 31.5% (vs H1-22: 12.8%) and 3.0% (vs H1-22: 1.2%), respectively.