FBN Holdings FY2023: Strong Interest & Fee Income Growth, Fair Value Gains, Drive Profit Growth

Nnamdi Okonkwo, Group Managing Director, FBN Holdings Plc. Image Credit arise.tv

May 24, 2024/CSL Research

FBNH FY 2023 audited numbers showed strong growth in both Interest and Non-Interest Income. Interest Income was up 74.0% y/y (13.4% above our forecast) driven by growth in Interest Income on both Investment Securities and Loans. Net Loans to customers were up 67.8% y/y (including the impact of devaluation on FCY denominated loans). Earnings yield improved to 10.7% in 2023 compared with 8.8% in 2022.

Interest Expense on the other hand, also grew significantly, up 118.0% y/y and 17.6% above our forecast resulting in an uptick in cost of funds to 3.7% for FY 2023 compared with 2.3% for FY 2022. Customer Deposits were up 49.7% y/y, also inclusive of the impact of devaluation on FCY deposits. Overall, Net Interest Income grew strongly, up 51.1% y/y and 10.4% ahead of our forecast while Net-Interest Margin (NIM) settled at 6.1% compared with 5.8% for FY 2022.

Net Fee and Commission Income also grew strongly, up 63.8% y/y and 20.9% above our forecast. While all Fee and Commission Income lines showed y/y growth, major drivers were a growth in electronic banking fees (up 20.4% y/y), strong growth in letters of credit commissions and fees (up 278.4% y/y) and strong growth in funds transfer & intermediation fees (up 204.9% y/y).

FBN Holdings FY 2023

Source: Company data, 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) increased by 273.9% y/y and 56.1% above our forecast. The group reported fair value gains on financial instruments at FVTPL of N682.6bn for FY 2023 compared with only N10.8bn for FY 2022 but the impact on profit was moderated by unrealised foreign exchange revaluation loss of N341.6bn reported in 2023.

Operating Expenses grew 55.1% y/y and came in 20.3% higher than our forecast. The stronger y/y growth in Total Operating Income (+94.8% y/y) compared with the growth in opex led to an improvement in Cost to Income Ratio (CIR ex provisions) to 49.1% in 2023 from 61.7% in 2022.

FY 2023 impairment Charge grew significantly due to the devaluation impact on FCY Impairments, up 231.4% y/y to N227.4bn with N68.6bn in FY 2022, bringing FY 2023 Cost of Risk (COR) to 4.3% compared with 1.7% for FY 2022.

Pre-tax Profit grew strongly, up 127.3% y/y to N358.9bn while Net profit was up 127.9% y/y to N310.4bn, 2.6% ahead of our forecast of N302.4bn, bringing FY 2023 ROAE to 22.6% compared with 14.5% for FY 2022.

The management proposed a final dividend of N0.40/s, lower than the 0.50/s paid last year, implying a dividend yield of 1.77%. The dividend announcement was disappointing, and we believe the stock may be sold down over the next couple of days.

Fbn holdings will host a teleconference call with analysts and investors on the audited FY December 31, 2023 results and unaudited first quarter March 31, 2024 on Tuesday, May 28, 2024, at 3:00pm Lagos / 3:00pm UK / 10:00am New York / 4:00pm Johannesburg & Cape Town.

We have a hold recommendation on the stock with a target price of N29.64/s. Current price: N22.55/s.

Kindly click on the below link to download the full report.

FBN Holdings FY 2023 Quick take .pdf

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