FBN Holdings PLC FY'19 (Unaudited) Earnings -Bank records 4% y/y growth in Gross Earnings, PAT

High Opex erodes mild earnings gains

FBNH released its Unaudited FY’19 results, reporting most y/y improvements across key line items. Interest Income came in 4% higher y/y at ₦614.5 billion (Vetiva estimate: ₦593.0 billion), largely the result of a 16% increase in income from investment securities. Meanwhile, Interest Expense grew by just 3% y/y to ₦154.3 billion, in line with our estimate, the result of a 51% y/y drop in interest paid on borrowings. Overall, Net Interest Income came in flat y/y at ₦286.4 billion (Vetiva estimate: ₦281.5 billion). Furthermore, the bank also reported a 12% y/y increase in Non-Interest Income, mainly driven by a 234% y/y gain in trading income. Moreover, the bank posted a 52% y/y decline in provisions on loans to ₦41.7 billion (Vetiva estimate: ₦36.9 billion), a positive sign for the bank’s risk management going forward (FY’19: 2.1% vs FY’18:4.2%). However, the bank posted a 20% y/y jump in Opex to ₦345.1 billion (Vetiva Estimate: ₦317.9 billion); this was driven by a 13% increase in Operational losses to ₦24.1 billion. Ultimately, the bank still recorded a 13% y/y increase in PBT to ₦ 73.5 billion and PAT of ₦62.1 billion (Vetiva Estimate: ₦70.9 billion), translating to an ROAE of 10.1%. While we are encouraged by the bank’s continued efforts to reduce loan loss provisions by writing off legacy bad debts, the bank’s Cost-to-income ratio remains a concern.

Profits halve in fourth quarter

While the bank reported a strong fourth quarter for Gross earnings (+17% q/q to ₦171 billion) and Net Interest Income (+16% q/q to ₦74.9 billion), a 109% q/q jump in provisions to ₦13.25 billion and 35% q/q rise in Opex, led to a 33% drop in PBT to ₦13.5 billion and a 49% fall in PAT to ₦10.3 billion. Although we do not expect the bank to record such high losses going forward, we expect FBNH’s cost-to income ratio to remain above 70% in the near-term (Tier-1 average: 56.5%).