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Wednesday, June 29, 2022

FBN Holdings Delivers Higher Returns to Shareholders

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FBN Holdings Plc stellar performance and improvement in all key financial metrics means the lender is firing on all cylinders, validating the change in ownership.

Like a straight “A” student who graduates with first class, the lender earned a pass mark in asset quality, net interest margin, return on average quality, and cost efficiency.

Net Interest Margin

It released its first quarter financial statement  that showed pre-tax profit surged by 93.12 percent to N36.50 billion, and that’s an all-time high of seven years.

Interest income was up 39.68 percent to N109.44 billion as at March 2022, thanks to gradual improvement in the rate environment and effective management of risk assets portfolio.

It is important to note that FBNHoldings is able to earn more profit on loans it grants customers as net interest margin (NIM)-which is the difference between the interest income generated and the amount of interest paid out to lenders-increased to 5.10 percent in March 2022 from 4.60 percent the previous year.

A high net interest margin also indicates that the lender has a higher level of cushion on a loan. If the economic cycle decreases and insolvency increases in the future, higher net interest helps banks absorb a higher degree of shocks.

FBNHoldings said its focus remains on optimising margins while innovatively strengthening revenue and diversification opportunities.

Nigerian banks have seen an improvement in profitability on the back of improved yield environment and risk accretion through asset.

Analysts are optimistic that the central bank’s decision to hike monetary policy rates will add impetus to sector players’ earnings.

The propitious outlook amid harsh regulatory environment makes Banks’ stocks an allure of investors who are clinging onto apathy towards shares given unpredictable macroeconomic policies.

Of course, the elephant in the room remains the high cash reserve ratio that is one of the highest in the world.

Expenses

Amid inflationary pressures, huge energy cost, and currency volatility, FBNHoldings cost to income ratio reduced to 67.0 percent in the period under review from 69.60 percent the previous year.

Operating expenses (Opex) increased by 26.63 percent year on year (y-o-y) to N84.92 billion, above the inflation rate of 16.80 percent as at April.

The operating cost was largely impacted by staff cost and regulatory cost such the AMCON charge.

FBNHoldings said it intends on driving operational efficiency and productivity improvements using innovation & technology tools as well as transforming channel mix to align with consumer shifts.

Asset Quality

An improvement in asset quality supports the drive to enhance balance sheet strength. Asset quality improved with a reduction in NPL ratio to 6.0 % in March 2022 from 6.10 as at December 2021.

The Group’s net customer loans increased by 3.50 percent to N4.03 trillion in the period under review from N3.89 trillion the previous year.

The lender restructured about 14 percent of gross loans under the CBN COVID Forbearance in 2021. 92 percent of the CBN forbearance loan is in stage 2 and the balance in stage 1.

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