In its Q1’21 results, FBNH posted a 14% y/y drop in Gross earnings to ₦136.6 billion. This came as a result of a 25% y/y decline in Interest Income to ₦78.4 billion. The steep decline in Interest Income was due to a 62% drop in investment securities income – which follows industry trend. On the other hand, the bank reported a 6% y/y improvement in Non-Interest Revenue, thanks to a 32% y/y jump in Fees and Commissions income to ₦34.0 billion.
On the cost side, the bank’s provisions went up 36% y/y to ₦13.2 billion, amid a spike in impairments on loans and advances. Meanwhile, the bank’s Opex increased by only 3% y/y to ₦78.9 billion, despite AMCON charges rising to ₦15.3 billion from ₦11.2 billion in Q1’20; the tame growth figure came about as a result of a decline in Operational losses to ₦0.8 billion from ₦6.3 billion in the corresponding period of 2020. Overall, this led the bank to report a 34% y/y decline in PBT to ₦18.9 billion and PAT of ₦15.6 billion, a 32% y/y decline. This gives the bank an annualized ROAE of 8.7% (FY’20: 11.2%).

Impairments, weak Interest Income to drag profits y/y
Amidst weak earnings returns due to the current yield environment, FBNH has had to raise its provisions significantly to cover its loan book, which has grown 4%. Looking forward, we expect the bank’s provisions to remain high in comparison to 2020 and project a final impairment figure of ₦52.2 billion (Previous: ₦40.4 billion). Additionally, the bank’s Interest Income line came in significantly lower than expected; primarily, the low yields in the Fixed Income (FI) market had a negative impact on income from investment securities, despite yields actually improving from their steady decline in 2020. We believe that this is due to the bank’s overall position, with low-yielding maturities causing the hit on income. Therefore, we lower our FY’21 Interest Income projection to ₦324.6 billion (Previous: ₦391 billion). Finally, the bank’s NIR was significantly stronger than originally predicted due to solid fees and commissions income, whilst foreign exchange revaluation gains could still improve over the course of the year in the event of any further devaluations in the local currency. Thus, we raise our NIR forecast to ₦232.7 billion (Previous: ₦216.8 billion). Overall, this gives us a new PBT expectation of ₦85.8 billion (Previous: ₦103.7 billion) and PAT of ₦72.9 billion, which yields an ROAE of 9.2% (Previous: 11.3%).