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FBN HOLDINGS PLC 9M'20 - PAT on course for growth in FY'20

Tame Opex, Provisions boost profitability
FBNH recently released 9M’20 results. As expected, the bank posted a 3% y/y improvement in Gross Earnings to ₦439 billion. This was due to Non-Interest Income growing 36% y/y to ₦142 billion (Vetiva Estimate: ₦129 billion) while Interest Income fell 8% y/y to ₦298 billion (Vetiva Estimate: ₦310 billion). Interest Expense also fell 10% y/y to ₦105 billion (Vetiva Estimate: ₦108 billion), bringing Net Interest Income to ₦193 billion, a 7% y/y decline. The jump in Non-Interest Income came as a result of a significant uptick in income from the sale of investment securities, with the Q3 figure of ₦15 billion more than doubling the 9M’19 figure of ₦7 billion. Meanwhile, the bank managed to tame Opex in Q3, giving a 9M figure of ₦224 billion (Vetiva Estimate: ₦221 billion), a 1% y/y decline which was due to a 62% y/y decline in operational losses. However, loan loss provisions remained high as expected, growing 64% y/y to ₦47 billion (Vetiva Estimate: ₦48 billion), although provisions declined 24% q/q to ₦16 billion. Overall, this resulted in a 12% y/y increase in PBT to ₦63 billion (Vetiva Estimate: ₦62 billion) and PAT of ₦54 billion, in line with our estimate. This yielded an EPS of ₦1.55 for the period.

Q3 recovery bodes well for Q4, FY’20 and beyond
FBNH’s Q3 performance showed encouraging signs of the bank turning a corner in terms of managing expenses and growing revenue. Whilst Interest Income declined 12% q/q to ₦90 billion, Non-Interest Income grew 53% q/q to ₦52 billion. This was a result of the bank reversing the losses made on some line items in the previous quarter. Specifically, the bank’s foreign exchange income losses were reduced by a net gain of ₦3 billion in the quarter. Furthermore, the bank reported a 6% q/q increase in fees and commissions whereas most peers saw this line item decline q/q. Looking forward, we expect these line items to continue to support Non-Interest Income; thus, we revise our FY’20 estimate to ₦173 billion (Previous: ₦160 billion).