Of FBNH Numbers and Tables: A Look at the FBNH Ratios


Monday, September 27, 2021 05:00 AM / by Proshare Research/ Header Image Credit: EcoGraphics

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The latest ratings from major rating agencies for both the Holdco business and the commercial bank as of December 2020 were B-/Stable/B or B-/Negative/B, except for Global Credit Rating, which rated the financial institution A-/Positive/A2 in the same period. The ratings seemed not to have changed even after the mind-blowing revelations made by CBN on the 12th of May 2021.


The financial ratios of the group have improved when compared to its position in 2016. The latest result of the lender shows some of the ratios met with the regulatory minimum. For instance, the CAR was 15.70% as of H1 2021, barely above 15% of the regulatory minimum. Also, the NPL ratio of 7.20% in the same period is above the regulatory threshold of 5%. Net interest margin (NIM) and gross earnings margin have both declined compared to the same period in 2020, indicating that profit from the loans and advances of the institution fell in the period. Investor returns have also seen a dip within the period (see table 3 below).


Table 3: FBNH - Financial Ratios

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Net Interest Margin - The Case of Expense or Interest

The sliding movement in net interest income (NIM) between 2016 and 2020 has been contrary to a preferred shift in NIM. A higher NIM shows a higher interest income against interest expense. The group's net interest margin (NIM) fell by -30.68% between 2016 and 2020 and was 4.40% as of H1 2021.


In 2016, the group had its highest NIM of 8.80%, while 2020 records the lowest NIM of 6.10% during the period under review. Year on year, the NIM of the financial institution dipped substantially by -35.29% to 4.40% in H1 2021 from 6.80% in H1 2020 (see chart 15 below).


Chart 15: FBNH's Net Interest Margin 2016 - H1 2021

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Source: FBNH, Proshare Research


The Bug Called Impairments

FBNH's impairment charges for losses have been on a downward spiral between 2016 and 2021. The fall in charges mirrored the rise in PBT of the Holdco. In 2020, PBT rose Y-o-Y by +0.13%, while impairment charges dropped by -1.05%. The lender had the highest fall in impairment charges of -41.58%, while 2020 saw the lowest decline.

On a quarter-on-quarter (Q-o-Q) basis in 2021, FBNH did not record any impairment charge on losses in Q2 2021 against N13.18bn posted in Q1 2020 (see chart 16 below).



Chart 16: FBNH's Impairment Charge on Losses 2016 - H1 2021 (N’bn)

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Source: FBNH, Proshare Research



Asset Quality

Non-Performing Loans

Non-performing loans (NPLs) of FBNH in recent years have improved, although still above the regulatory threshold of 5%. The steady decline in NPLs contrasted with the continued rise in loans and customer advances, implying improved loan quality. Loans and advances to customers were up Y-o-Y by +19.70% to N2.23trn for FY2020, while NPLs dipped by -22.22% in the same period (see chart 17 below).




Chart 17: FBNH's Non-Performing Loans 2016 - H1 2021

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Source: FBNH, Proshare Research


Loans By Sector

A breakdown of the group's commercial and merchant banking unit shows they are both primarily exposed to different sectors; however, the loan size of the merchant bank is just a fraction of that of the commercial counterpart.


FBN's Oil and Gas sector (downstream, upstream, and services) loans have been high-risk. The O&G industry is volatile, especially for local businesses, as the international market factors are beyond the country's control. Data also shows that the merchant bank business is exposed to the manufacturing sector (see chart 18 below).


Chart 18: FBN: Breakdown of Loans by Sector

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Cost & Income

The change in operating expenses has been higher than the change in operating income. The change saw a rise in the lender's cost-to-income ratio (CIR) between 2016 and 2020. Double-digit inflation rates, a rise in regulatory costs, and administrative expenses pushed a +45.96% growth in CIR to 68.60% in 2020 from 47.00% in 2016 (see chart 19 below).



Chart 19: FBNH's Cost-to-Income Ratio 2016 - H1 2021

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Source: FBNH, Proshare Research


Mitigating Cost, Controlling Risk

The bank's cost of risk improved between 2016 and 2020; this showed the downward spiral of the group's cost of risk (CoR). With 2016 recording the highest CoR of 10.40%, H1 2021 has the lowest CoR of the institution during the period under review (see chart 20 below).


Reducing CoR to less than 1% in 2024 was part of the group's strategic priorities. It intends to achieve this by "consolidating technology deployments across the group and, continue automation of key processes in the Bank to improve quality of service, turnaround time, and manage risk," as stated in the financial presentation of the bank.

Chart 20: FBNH's Cost of Risk 2016 - H1 2021

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Source: FBNH, Proshare Research


Investor Returns- Swimming with the Tide

The return on investment (ROI) of FBNH rose between 2016 and H1 2021. The rise swam on the back of the steady increases in top-line and bottom-line earnings, new cost management strategies and an improvement in asset quality.


The most recent published data by the group showed that the merchant bank had a higher investor return. In H1 2021, the return on average equity (ROaE) for FBNQuest Merchant bank was 10.8%, slightly higher than 10.4% of FirstBank Nigeria; however, in the preceding year, FBNQuest recorded an ROE of 16. 3% while the commercial bank posted an ROE of 10.4%.


The group targets an ROE greater than 20% in 2024, majorly driven by digital innovation, with the steady improve ment in earnings between 2016 and H1 2021; this projection may not be too ambitious as the institution intends to improve its product and service by deepening the usage of technology in its processes (see illustration 8 below).


Illustration 8: FBNH & Its ROE

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Return on Equity (ROE)

The percentage change in return on equity has moved in the same direction as the percentage change in PBT in recent years. ROE has grown continuously between 2016 and 2020. In the first half of 2021, it fell by -32.72% to 9.9% from 14.50% in the contemporary period of 2020.


The movement in growth of shareholders fund has been unstable, with total equity recording a decline of -22.01% in 2018, while in 2019, the institution recorded its highest growth of +24.99% in shareholders fund (see chart 21 below).




Chart 21: FBNH's Return on Equity 2016 - H1 2021

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Source: FBNH, Proshare Research


Return on Assets (ROA)

In the recent past, return on average assets (ROaA) has been relatively stable, compared to the movement in total assets. On a Y-o-Y basis, ROaA declined to 1% in H1 2021 from 1.5% in H1 2020 (see chart 22 below).


Chart 22: FBNH's Return on Average Assets 2016 - H1 2021

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Source: FBNH, Proshare Research

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Downloadable Versions of 100 Days After CBN's Board Removal: First Bank's Shaky House of Cards Report (PDF)

1.      Executive Summary: 100 Days After CBN's Board Removal: First Bank's Shaky House of Cards -  September 19, 2021

2.     Full Report: 100 Days After CBN's Board Removal: First Bank's Shaky House of Cards  -  September 19, 2021

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7.  Board Governance: A Thin Line Between Oversight and Operations - Sep 28, 2020 - IoD Centre for Corporate Governance

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