October 20, 2017 11:34AM / Proshare Research
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Economy: Healthier Leading
The Nigerian economy fully returned to a growth
trajectory at the end of the first half of 2017. This growth was as a
result of buffering oil prices and improved oil production. The cycle had
completely receded from earlier negative reversals at the end of the second
quarter of 2017, thus generating an expansion in Gross Domestic Product (GDP)
by 0.55% in the same quarter. Earlier price pressure witnessed throughout 2016
had begun to soften as the effect of base year weaned.
Thus, the macro picture is already showing
positive signs due to improvement in the health of leading indicators such as
GDP, Purchasing Managers’ Index, and balance of payment, nominal currency and
inflation. Regardless, the Monetary Policy Committee maintained a tight
monetary cycle throughout the second quarter of 2017, as it focused on
inflation and exchange rate stability.
FBNHoldings (FBNH) in Q2 2017 generated interest
income of N117.6 billion, reflecting a 3.1% growth and 37.2% growth on a
quarterly and yearly basis, respectively. This growth steams from improved
macro condition coupled with slight increase in the cost of funds from 3.4% in
Q1 2017 to 3.5% in Q2 2017. When compared to H1 2016, FBNH’s interest income
grew by 37% to reach N231.7 billon in the second half of 2017.
The bank’s non-interest income rose by 8.7% from N24.2 billion in Q1
2017 to N26.3 billion in Q2 2017. Non-interest income on a year on year
basis fell sharply by 46%, as a result of a high base and fizzling out of
revaluation gain earlier experienced in 2016. Gross earnings at the end of the
H1 2017 stood at N289billion reflective of an 8% growth on a year on year
basis, thereby underlining the bank’s strong earning capacity.
FBNH’s operating expenses fell by 8.6% from
N55.7 billion in Q1 2017 to N50.9 billion in Q2 2017. However, the cost to
income ratio of the bank has increased from 53.3% in Q1 2017 to 54.4% at the
end of Q2 2017. In addition, FBNH has embarked on an aggressive loan recovery
policy which will see it reclassifying its loan and give it ample room to clean
up its balance sheet and strengthen stock taking.
FBNH’s operating profit in Q2 2017 fell to N15.5
billion against N19.9 billion in Q1 2017. Similarly, PAT reduced to N13.0
billion in Q2 2017 as against N15.7 billion in Q1 2017. The fall in operating
profit and PAT was as a result of exhaustion in revaluation gains combined with
slight deviation from earlier cost compression measures, thus making its bottom
line more volatile.
FirstBank’s capital adequacy ratio (CAR) dipped
from 17.8% in Q1 2017 to 17.6% in Q2 2017, still making it higher than the
regulatory prudential ratio of 15%. At the same time the bank’s gearing ratio
fell from 64.6% in Q1 2017 to 62.9 Q2 2017.
Certainly, the bank’s ability to leverage on its
cost of risk and the depth of its deposit base will improve its earning
capacity. It is also expected that as macro condition improves fused with
stable oil prices such dynamics will provide the needed support for the bank’s
loan recovery drive, given its high exposure to the oil sector.
At the same time it is important for the bank to
improve its capital adequacy ratio, improve asset quality, cost-to-income
ratio, sustain its aggressive loan recovery drive and more importantly improve
synergy across all arms in order to bolster the non-interest income stream.
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