FBNH - Impairment charges erode returns, though not without Silver-lining


Tuesday, May 04, 2016 8.38 PM / TheAnalyst

FBN Holdings Plc presented its full year audited reports for 2015 and Q1’2016 financial periods with unimpressive top-line and bottom-line postures as gross earnings performance closed significantly lower at 4.86% (yoy)- far below expectation with a plunge of 81.97% (yoy)-  and 77.15% (yoy)-  in its both PAT and PBT  respectively for the period ended December 31st 2015. The growing non-performing loans in the Oil and Gas sector, which amounted to N119.3billion impairment charges impacted the bottom-line significantly. 

In a similar fashion, the HoldingCo sustained the unimpressive posture in its Q1’16 earnings report to post negative growth of 15.22% (yoy) and 8.31% (yoy) in its gross earnings and PAT respectively. Though, this has not come without a sliver-lining as we observed improved bottom-line performance of 36.81% growth on QoQ basis, driven by improved cost of funds and Net interest Margin of 8.1%, growing 6.9% recorded in Q1’15 .

Efficiency and Margins: Improved operating efficiency gives hope as management sets new agenda

Furthermore, we observed improved operating efficiency as cost-to-income ratio (CIR) came in stronger for both FY’15 and Q1’16 as new management deployed aggressive cost-cutting initiatives, which lowered the operating expensing by 5.6% and 11.8% in both FY’15 and Q1’16 respectively. The CIR moderated at 61.4% in FY’15 against 66.5% recorded in FY’14- a better outlook was observed in Q1’16 as CIR closed lower at 59.4% against 65.1% recorded in Q1’15. This in our opinion had significantly impacted the recovery pattern observed in PAT margin of HoldingCo to close at 19.28% in Q1’16 against 17.83% recorded in Q1’15. In addition, we commend the sustained growth in net interest margin of 8.1% and 8.7% growth FY’15 interest income to close at N265.0billion despite challenging business environment. Nevertheless, we remain cautiously optimistic towards sustained operating efficiency, which would drive improved profitability posture as we anticipate the FBNHolding to continue the cost-cutting initiatives.

Assets Quality: Sustained growth in retail deposit amid impact of TSA total deposit

The implementation of TSA by Federal Government adversely impacted the deposit posture significantly in both FY’15 and Q1’16. The customers’ deposit declined by 2.6%(yoy) to close at N2.97trillion in FY’15. The year-to-date posture remains unimpressive as deposit stood at N2.3trillion, representing 4.3% decline in Q1’16. Though, the management revealed a retail deposit growth of 66.2% and 70.2% in both FY’15 and Q1’16, which indicates sustained customers’ loyalty.

The loan-book of the HoldingCo continues to tumble on QoQ basis since Q3’15 to Q1’16. This reveals a sustained falling pattern in loan growth, which reflects an inability of the bank to grow its loan-book. 

Also, the loan book contracted by 16.06% (yoy) in FY’15 with a further decline of 3.03%(yoy) in Q’16 in the face of unimpressive of posture of NPL ratio of 18.1% in FY’15 and 21.5% in Q1’16, which reflects the reason why the Holding group muted on the loan book growth while the loan-to-deposit ratio of 62.15% revealed a conservative posture of the firm. Nonetheless, we advise the management to re-design the risk management strategies and approach to mitigate against the bloated posture of NPL ratio. 

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