Thursday, April 01, 2021 / 12:45 PM / NSE /Header Image Credit: FBN Holdings Plc
FBN Holdings Plc released its 2020 Audited results for the period ended December 31st, 2020.
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FBN Holdings Plc. (â€œFBNHâ€ or â€œFBNHoldingsâ€ or the â€œGroupâ€) today announces its audited results for the financial year ended 31 December 2020.
U.K Eke, the Group Managing Director commented:
"FBNHoldings is pleased to close the year in a healthy financial position despite the difficult operating environment that has been characterized by unprecedented events as a result of the pandemic and challenging economic environment. As part of our strategic planning cycle, which is in the second year, we exited the insurance underwriting business through the sale of our interest in FBNInsurance to our long-term partner, the Sanlam Group. This decision is consistent with our portfolio optimisation strategy, underscored by the renewed focus on deepening our foothold in the banking sector through increased investment in digitalisation, innovation, and expansion in financial services for the benefit of our existing and new customers. The proceeds from the sale have been injected in First Bank of Nigeria to strengthen the core business of the Group and drive further market growth.
Five years ago, we outlined our strategy to diversify our income stream by boosting non-interest income through a transaction-led banking model. We believe this decision reduced the burden on our customers during the lockdown by providing seamless access to banking service, as well as, support the effort of the Government and other donor agencies to reach Nigerians with the COVID-19 support programs.
During the year 2020, Profit before tax grew 11.2% y-o-y to N83.7 billion and our non-interest income recorded a growth of 26.7% y-o-y to N174.7 billion. These results were despite the challenging rate environment evidenced by the decline in fixed income rates and higher cash reserving requirements leading to a 10.9% y-o-y decline in interest income to N384.8 billion. However, we mitigated the impact on net interest income by containing interest expense through reducing the cost of deposit and driving low-cost deposits.
We remain focused on driving operating expenses down and improving cost to income ratio. In 2020, operating expense was up marginally by 0.5% y-o-y growing significantly slower than inflation. Notwithstanding, our strategy is to continue to deploy the two-pronged approach of driving revenue through the transaction-led banking model, whilst implementing initiatives geared towards containing operating cost, to help reduce the cost to income ratio.
I am also delighted with the improved risk management processes and architecture which continues to yield positive results. Consistent with our commitment to a single-digit NPL to the market, we further reduced the ratio to 7.7% (Dec 2019: 9.9%).
Overall, whilst these developments represent significant progress in our journey to reposition the Group, over the planning cycle, we will be increasing the pace of implementation of our mid-range initiatives including the optimisation of our portfolio to extract increased value from existing assets, and evaluating options to support our vision of remaining dominant in the financial services industry in Africa."
Group Financial Review
Gross earnings were down 1.9% y-o-y to N579.4 billion (Dec 2019: N590.4 billion). This was driven by a 10.9% y-o-y decline in interest income to N384.8 billion (Dec 2019: N431.9 billion) largely on the back of Government securities which declined on the short and long end of the yield curve. Although interest expense declined 12.6% y-o-y to N133.2 billion (Dec 2019: N152.3 billion), net interest income declined 10.0% y-o-y to N251.6 billion (Dec 2019: N279.6 billion) due to depressed yields and higher cash reserve requirements. On the other hand, non-interest revenue increased 26.7% y-o-y to N174.7 billion (Dec 2019: N137.9 billion) on the back of increased fees and commission income and other non-interest income. Looking ahead, we will continue to drive revenue through non-funded and grow interest income with a focus on deliberate increased lending opportunities.
Despite the inflationary pressure and currency devaluation, operating expense grew only by 0.5% y-o-y to N292.5 billion (Dec 2019: N291.2 billion). Staff costs were up 4.9% y-o-y and well below inflation (15.75% as at Dec 2020) while regulatory cost, the second largest cost component, increased by 16.3% y-o-y. Though operating expenses grew marginally, operating income increased by 2.1% resulting in an improvement in cost to income ratio at 68.6% (Dec 2019: 69.7%). Going forward, the focus will remain on cost optimisation and growing overall revenue as we continue to push our transaction-led model.
Deposit from Customers increased by 21.8% y-o-y to N4.9 trillion (Dec 2019: N4.0 trillion) reaffirming our strong market access and robust funding base. The Group benefited from increased agent banking/customer penetration and adoption of services on the digital platform. These deepened our solid retail base and improved our current and savings account (CASA) to 91.3% (Dec 2019: 85.6%) (First Bank of Nigeria). We maintained our access to foreign currency lines enabling us to support customers and strengthen our market share of the trade finance business. This strong market access was demonstrated by the successful issuance of a US$350 million 144A / RegS 5-year senior unsecured Eurobond in 2020 by First Bank of Nigeria Limited, despite the market volatility. The issue was the first benchmark Eurobond issue from an African Bank in 2020 and it was supported by global investors including key fixed income accounts across the United Kingdom, Europe, United States, Africa and other regions; a testament to our focus and the trust of global investors in the franchise.
Total assets are up 23.9% y-o-y to N7.7trillion (Dec 2019: N6.2trillion) driven by a 59.1% y-o-y increase in cash and balances with Central Banks, as well as, a 19.7% y-o-y increase in customer loans. Cash and balances with Central Banks, loans to banks & customers and investment securities constitute 83.4% of total assets (Dec 2019: 81.4%).
On the Asset Quality and Risk Management front, we have continued to enjoy the benefits of our retooled and strengthened risk management architecture. This is evidenced by a 1.0% y-o-y decline in impairment charge to N50.6billion (Dec 2019: N51.1billion), declining NPL ratio to 7.7% (Dec 2019: 9.9%) with vintage NPL17sustained at less than 1.0% and improving Cost of risk of 2.4% (Dec 2019: 2.6%). The impact of the COVID-19 pandemic was muted because of a well-diversified loan book and minimal exposure to sectors most affected by the pandemic.