FBN Holdings Plc - Lower Cost of Risk Supports ROE


Tuesday, October 22, 2019 / 12:24 PM / By CardinalStone Research / Header Image Credit: InvestAdvocate

FBN Holdings Plc (FBNH: TP 7.76 - BUY) has reported a 13.1% YoY increase in EPS to N1.38 for 9M'19 in its latest filing with the Nigerian Stock Exchange (NSE). The growth in earnings can be attributed to lower credit impairment losses (-62.6% YoY) as well as growth in net fee and commission income (+21.5% YoY).


Some Positives:

  • Gross loans to customers grew by 2.7% in Q3'19 to N1.9 trillion compared to the level in Q2'19. This is possibly a reflection of the CBN's recent measures aimed at boosting credit to the private sector. Year-to-date, however, FBNH's gross loans represent a 6.4% contraction from FY'18 level (vs. -8.9% in H1'19)
  • Notwithstanding the growth in loans, NPL ratio declined from 14.5% in Q2'19 to 12.6% in Q3'19. This is largely in line with management's commitment to reduce the NPL ratio to below 10.0% by FY'19. We note that NPL ratio was 25.6% as at FY'18.
  • Credit impairment losses declined further in Q3'19 (-23.1%) to N6.4 billion. This is reflects improvement in cost of risk to 2.0% in 9M'19 from 2.5% in H1'19. Cost of risk as at FY'18 was 4.2%.
  • Non-interest income grew by 5.6% QoQ, supported by higher net fees and commission income (+8.7%) and a 10-fold increase in investment security gains during the quarter.
  • Annualised ROE and ROA, at 12.2% and 1.2% respectively, are currently ahead of FY'18 levels of 9.9% and 1.1% respectively.


Some Concerns:

  • Although operating expenses declined during the quarter (-4.7% QoQ), cost to income ratio remains elevated (Q3'19: 73.5%; Q2'19: 72.8%) largely reflecting the impact of weaker net interest income (-10.8% QoQ). Year to date, the observed weakness in cost to income ratio (9M'19: 71.5%; 9M'18: 59.5%) reflects the impact of the bank's ongoing optimization projects to ensure long-term operational efficiencies. According to management, these costs are one-off and unlikely to recur post-FY'19.
  • We also note the decline in CAR to 15.1% as at 9M'19 (regulatory minimum: 15.0%). According to management, the CAR of 15.1% does not capture the impact of a capitalization of earnings generated during the year, which could potentially uplift capital adequacy ratio to between 16.4% and 16.8% for the period. However, this is still below the bank's CAR of 17.3% as at FY'18.

Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.

Related News

1.      FBNH Declares N51.75bn PAT in Q3 2019 Results,(SP:N5.30k)

2.     FBNH Notifies Of The Company's Board Meeting And Closed Period

3.     FBNH Searches For Growth; H1 Operating Income Drops -0.3%

4.     FBN Holdings Plc - Unaudited Q2 19 Results Show Impact of Lower Provisioning and Rising Cost

5.     FBNH Declares N31.72bn PAT in Q2 2019 Results,(SP:N5.65k)

6.     FBNH Exercises Option To Call Its US450m 8% Subordinated Notes Due July 2021

7.     FBNH Holds 7th AGM; Shareholders Laud FY2018 Financial Performance; Approves 26k Dividend

8.     FBN Holdings Plc. Reports Gross Earnings of N145.8bn in Q1 2019

9.     FBNH Releases Q1'19 Results; Declares N15.79 bln PAT in Q1'19 (SP:N7.90k)

10.  FBNH Notifies of a Change in the Qualifying Date for the Payment of Dividend

Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.

Related News