October 30, 2023/Cordros Report
FBN Holdings Plc (FBNH) published its 9M-23 unaudited numbers after the close of business on Friday (27 October), which showed that the Holdco recorded a 160.6% y/y increase in earnings per share to NGN6.54 (vs 9M-22: NGN2.51). We attribute the substantial earnings expansion to the increases across the group’s funded (+71.1% y/y) and non-funded (+108.5% y/y) income lines. In Q3-23, FBNH’s standalone EPS printed NGN1.35, which is 40.6% y/y higher than NGN0.96 in Q3-22.
FBNH delivered a 71.1% y/y in interest income to NGN633.80 billion in 9M-23. In line with the banking sector trend, the rise in interest income was largely driven by elevated yields in the fixed income and an increase in earning assets (+30.3% YTD to NGN8.33 trillion). As a result, the group’s earnings yields increased by 250bps y/y to 10.5% in the review period. Parsing through the contributory lines in nominal terms, the group recorded higher income from loans and advances to customers (+53.9% y/y to NGN414.03 billion), investment securities (+132.1% y/y to NGN186.72 billion), and loans and advances to banks (+72.1% y/y to NGN33.06 billion).
Elsewhere, interest expense advanced by 112.0% y/y to NGN256.11 billion as the group incurred higher costs on its deposits from customers (+125.8% y/y to NGN174.44 billion) and financial institutions (+114.4% y/y to NGN54.43 billion) due to the elevated interest rates in the debt market and deteriorating funding mix (CASA 9M-23: 77.4% | 2022FY: 84.8%). In the same vein, the group incurred higher costs on its borrowing (+49.9% y/y to NGN27.23 billion). Accordingly, the net interest income ex-LLE expanded by 19.4% y/y to NGN268.93 billion. Ultimately, the group’s net interest margin (NIM) increased by 80bps y/y to 6.2% in 9M-23.
The group recorded a higher non-interest income (+108.5% y/y to NGN327.29 billion), majorly driven by the higher gains from investment securities (+61.6% y/y to NGN43.55 billion), net fees & commission income (+30.8% y/y to NGN118.98 billion), and FX revaluation gains (+10.24ppts y/y to NGN246.08 billion). The preceding was sufficient to offset the losses (NGN96.67 billion) incurred on FX trading. We highlight that the income from fees and commission (17.9% q/q to NGN45.28 billion) was the quarter’s major drive for non-interest income growth.
Further down, operating expenses inched higher by 33.3% y/y to NGN352.28 billion, primarily driven by an increase in personnel expenses (+33.3% y/y to NGN113.19 billion), AMCON levy (+19.5% y/y to NGN70.83 billion), depreciation and amortization (+19.3% y/y to NGN24.45 billion), and NDIC premium (+7.3% y/y to NGN11.09 billion). Considering the group’s operating income (+68.4% y/y) growing faster than OPEX, the cost-to-income ratio (ex-LLE) settled lower at 56.6% relative to 71.5% in the prior year.
Profitability was stronger in 9M-23 as PAT was 156.3% y/y higher at NGN270.33 billion. FBNH’s ROAE and ROAA ultimately settled at 26.6% (vs 9M-22: 13.7%) and 2.5% (vs 9M-22: 1.3%), respectively.
Management will hold an investor call today (30 October 2023) at 3:00 pm Lagos time. Click here to register.
Comment: The financial performance of FBNH in 9M-23 was impressive, particularly the higher income from the group’s core banking and e-banking activities. Going into 2023E, we are optimistic that the combined impact of the elevated yield environment, revaluation gains recorded in the year, and the CRR reduction for merchant banks from 32.5% to 10.0% will support the group’s earnings growth. Our estimates are under review.
