FBNH's Sober Year; Soft Top Line Earnings, Modest Bottom Line Growth 9M 2019


Tuesday, October 22, 2019  /  06:00 AM /By TheAnalyst/ Header Image Credit: EcoGraphics


FBNH has had a modest period over the first nine months of the year 2019, a weak growth in gross domestic product (GDP) and a weaker growth in consumer spending has taken its toll on the group's financial performance.  Top line gross earnings grew from N441.5bn in 9 months 2018 to N439.9bn in 9 months 2019 (a slowing down of growth in GE 2019 see chart 2 below), representing a decline of -o.4%. The banks bottom line profit before tax, however, edged up by a strong +16.9% rising from N51.3bn in 2018 to N60bn in 2019.

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The Key Highlights of group's 9 months 2019 performance was as follows:

Income Statement

  • Net Interest Income rose from N221.5bn in 2018 to 221.4bn in 2019, flat growth
  • Non-Interest Income rose from N93.2bn in 2018 to N98.8bn in 2019, +6.01%
  • Operating Income dropped from N314.7bn in 2018 to N310.2bn in 2019, -1.43%
  • Impairment Charges for Credit Loss fell from N76.2bn in 2018 to N28,5bn in 2019, - 62.6% (consistent with improvement with impairment numbers in 2019, see chart 1 below)
  • Profit after tax climbed from N44.9bn in 2018 to N51.8bn in 2019, a rise of +15.3%


Chart 1 FBNH on Impairments to loan in H1 2019

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Source: FBNH financial statement 2014-H1 2019


Statement of Financial Position (Balance Sheet)

  • Total Assets of the group rose by +3% from N5.57trn in 2018 to N5.73trn in 2019
  • Customers Loans and Advances glided forward +8.1% from N1.68trn in full year (FY) 2018 to N1.82trn in 9 months 2019
  • Customer Deposits rose from N3.49trn in FY 2018 to N3.467trn in 9M 2019, a rise of +5.3% on a nine-month basis
  • The group's shareholder funds skipped up +14% from N530.6bn in FY 2018 to N604.9bn in 9 months 2019


Chart 2  FBNH Gross Earnings (N'm) H1 2019

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Source: FBNH's financial statement for H1 2019


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Mixed Outcome for Investors and Operations


Investors on the face of it, may seem pleased as return on average equity rose from 8.7% in 9 month 2018 to 12.2% 9 months 2019, suggesting that the bank has used N100 of equity to generate N12 of earnings in 9 months 2019 as against N8.70 over the same period of 2018, but the group still  saw earnings yield dip from 11.7% in 9 month 2018 to 11.2% in 9 months 2019. In addition, even though the group's cost of funds was cut from 3.6% in 2018 to 3.3% in 2019 the Holding company's cost to income ratio from 59.5% in 9 months 2018 to 71,5% in 9 months 2019. The banks rising cost ratio contradicts its 2018 strategic imperative of reducing the cost ratio to between 53% and 55%, which would have placed it amongst the lowest cost operators in the financial service sector.


Another worrisome aspect of the group's operations is that its gross loans to deposit ratio (LDR) fell from 65.9% in 9 months 2018 to 52.8% in 9 months 2019. The fall in LDR is happening at a time the CBN raised the minimum LDR from 60% by September 2019 to 65% by December. The pressure to achieve the new LDR threshold could mean that the group either slows down deposit growth or increases lending thereby possibly reversing its non-performing loans-to- gross loans ratio which fell from 19.8% in 9 months 2018 to 12.6% in 9 months 2019 (see table 1 below).



Table 1 FBNH 9 months 2019 Financial Statement

FBNH 9 months 2019 Key Ratios %








Post-tax return on average equity[1]



Post-tax return on average assets[2]



Earnings yield[3]



Net-interest margin[4]



Cost of funds[5]



Cost to income[6]



Gross loans to deposits



Liquidity (FirstBank(Nigeria))



Capital adequacy (FirstBank (Nigeria))[7]



Capital adequacy

(FBN Merchant Bank)11



NPL/Gross Loans



NPL coverage[8]



PPOP[9]/impairment charge (times)



Cost of risk[10]



Leverage (times)[11]






Source: FBNH 9 Months 2019 Financial Statement


FBN ("the bank") saw a fall in its liquidity ratio between the 9 months of the two years with liquidity tumbling from 42.2% in 9 months 2018 to 36.8% in the 9 months of 2019. First Bank of Nigeria (the largest member of the group) experienced a tightening of liquid assets relative to other assets, thereby adversely affecting its lending capacity Y-o-Y between 2018 and 2019. Not much is likely to change in the course of the year as the bank battles to meet the CBN 65% LDR threshold. If the bank expands its LDR it is likely to also increase its NPL and worsen its liquidity; but if it slows down its deposit growth it would also face a liquidity challenge as it would now have to depend more uncomfortably on the quality and liquidity of its short-term loan assets.


FBN's capital adequacy rati0, also unfortunately, fell from 17.4% in 9 months 2018 to 15.1% in 9 months 2019, suggesting that the bank's toxic loan assets still jab holes into its aspirations of improving the quality of its loan book. But the banks pre-operating profit provision (PPOP) plus impairment as a multiple of impairment charge rose from 1.7 times in 9 months till September 2018 to 3.1 times in 9 months to September 2019, an +82.35% improvement.


The group's merchant bank saw a rise in capital adequacy over the period rising from 12.1% in September 2018 to 15.1% in the contemporary period of 2019. The group's merchant bank seems to have been able to sustain higher quality of loans compared to its commercial bank counterpart, although the commercial bank has quite a hefty amount of toxic assets traced to the 2009 economic meltdown and the challenges brought about by the 2015/2016 economic recession which witnessed a deterioration in loan exposures to the oil and gas and energy sectors of the economy.


Getting Less Risky


Despite liquidity challenges the group has successfully fought back the cost of risk as it shaved off a hefty 2.6% of its risk costs between 9 months 2018 and 2019, reducing the cost from 4.5% in 2018 to 1.9% in 2019; reflecting a major reduction in impairment charges or what amounts to a higher quality of risk assets.


Statement of financial position stability is, however, an item that investors would worry about as the leverage ratio of the group rose from 7.7 in 9 months 2018 to 9.5 in 9 months 2019, reflecting the charge-offs against equity that the group (particularly FBN) had to make in complying with international financial reporting standard (IFRS) 9 requirements.  


The fall in group's book value per share (BVPS) may further put a damper on enthusiasm for the financial holding company's equity as BVPS fell from 19.4 in September 2018 to 16.9 in September 2019.



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Last Line

FBNH's 9 months 2019 financial performance was fairly soft on top line rigour but modestly robust on bottom line promise, the group still appears to be shaking out the cobwebs from its 2015/2016 toxic loan hangover as it tries to rebalance its overall credit portfolio while cutting down on risk, costs and impairments. The jury is still out on how well it is doing.  


In his comments on the report, the group's managing director Mr. UK Eke noted that, "During the third quarter, our NPL declined further to 12.6% as we approach the end of the curve in the resolution of our legacy portfolio and are confident of further reducing this to under 10% by the end of the current financial year. Critically, we have continued to focus on enhancing our risk framework processes enabling an improvement in the quality of our loan book. Concurrently, we have also continued our drive towards ensuing long-term operational efficiency, resulting in a one-off cost increase pushing our CIR for the first nine months.  In terms of our revenue generation, we have delivered further increases in our non-interest income, on the back of growth in electronic banking fees as well as improvements in transaction-led income."


A few of Eke's fiscal observations are desirable but the group is still to achieve the operational stability that would elicit a bullish longer-term outlook. Performance in the last quarter of the year would be critical in establishing a base line nod of approval for the groups cost cutting and risk-reduction strategy.


Conference call


FBNHoldings will host a question and answer teleconference call with analysts and investors on the unaudited results for the nine months ended 30 September 2019 on Friday 25 October 2019 at 3:00pm UK / 3:00pm Lagos / 10:00am New York / 4:00pm Johannesburg & Cape Town.

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Related Commentary on 9M Results for FBN

1.      FBN Holdings Plc - Lower Cost of Risk Supports ROE - CardinalStone Research, October 22, 2019 

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