FBN HOLDINGS PLC H1'20 Earnings Release -Strong half-year performance despite provisions surge

Strong half-year performance despite provisions surge                                                  

Currency devaluation impacts multiple income lines

FBNH recently released H1’20 results, posting a 6% y/y (from a restated H1’19 result) improvement in Gross Earnings to ₦296.6 billion. However, the bank reported a 7% y/y decline in Net Interest Income, on the back of lower Interest Income (₦207.4 billion) and higher Interest Expense. Meanwhile, Non-Interest Income rose by 40% y/y to ₦89.1 billion despite a ₦3.6 billion FX loss, dragged by a ₦6.2 billion loss in Q2 alone. On the other hand, Impairment charges surged to ₦30.7 billion during the period, with 66% of this coming in Q2 alone as a result of the translation impact of the bank’s foreign currency loans. However, the bank managed to tame Opex in the period, reporting only a 1% y/y climb to ₦148.2 billion as a result of a 66% drop in operational losses. Overall, this resulted in a 15% increase in PBT to ₦41.4 billion and PAT from continuing operations of ₦35.6 billion. The bank also announced the sale of its insurance business during the quarter, resulting in a profit from discontinued operations of ₦11.3 billion in Q2 and 13.8 billion for H1, bringing PAT for the period to ₦49.5 billion. This gives an EPS of ₦1.35 for the period.                                                 

FX strategy key to boosting performance in H2

In Q2’20, FBNH reported a 14% q/q decline in Gross Earnings on the back of a 2% decline in Interest Income (Although Net Interest Income rose q/q, thanks to a 29% decline in Interest Expense) and a 37% q/q drop in Non-Interest Income. The losses reported in FX trading were a departure from industry expectation, as the general expectation within the sector was that banks would gain materially from any devaluation depending on their net-open position. Going forward, based on the bank’s current debt profile and FX holdings, we expect impairments to remain high in the coming quarters, even outside the possibility of a further currency devaluation. Furthermore, the bank’s loan-book shrank 3% q/q to ₦1.99 trillion, an indication that further strategic shedding of legacy loans will continue at pace in the coming quarters.