FBN Holdings Q2: Still Running At High Speed On Profit
FBN Holdings Plc is still running on the high speed with which it began this year’s operations in the first quarter. A significantly enhanced ability to convert the naira of revenue into profit is the high point that the bank has sustained to half-year. Management has lifted profit margin well above the records seen any time since 2015.
The company ended half year operations with a cruising level profit advancement of 56 percent year-on-year, slowing down however from 63 percent in the first quarter. Gross earnings also slowed down from the record growth of 14.5 percent in the first quarter to less than 6 percent year-on-year at half-year.
Overall performance for the second quarter ended June 2020 reflects clearly our outlook for the company for the period – that the second quarter wasn’t going to be as impressive as the first.
Our outlook at the end of the first quarter read, “the revenue boost seen in the first quarter is likely to slow down in the second and that is expected to break the speed in profit growth. The build-up of credit volume might however prop up interest income but that will also come with the challenge of rising credit loss expenses”.
As indicated, credit losses changed direction from dropping for the fourth straight year at the end of the first quarter and rose by nearly 39 percent year-on-year at the end of half-year operations. The development undermined the strength for profit growth recorded in the first quarter and accounted largely for the profit slowdown in the second quarter.
Declining loan impairment expenses had provided a big cost saving centre for the bank since 2017 – which has shifted to a revenue consuming point in the second quarter of the current financial year. As expected, rising credit loss expenses is a general trend in the banking industry this year.
In spite of rising loan loss expenses, the bank’s management kept profit growing amidst volatile behavior in earnings during the quarter. The challenge of declining interest income lingered to the second quarter. A year-on-year decline of about 4 percent in interest income in the first quarter was unchanged at half-year. This is against a marginal improvement of 2 percent at the end of last year.
Capacity building of earning assets took a cautious mood in the second quarter in a reflection of the COVID-19-induced economic lockdown. Customer lending climbed down from more than N2 trillion at the end of the first quarter to N1.99 trillion at half-year.
Lending to other banks slowed down drastically while investment securities continued to drop. Management reinforced liquidity with a build-up of 76 percent in cash and bank balances to N1.8 trillion.
The challenge of the rising cost of funds in the first quarter was addressed significantly in the second quarter. Management prevented further growth in inter-bank borrowings in the second quarter while low-cost customer deposits strengthened up from a 6.6 percent increase in the first quarter to roughly 9 percent growth at half-year.
Interest expenses decelerated from 18 percent growth year-on-year in the first quarter to a marginal increase of 1.4 percent at half-year. This helped to temper the resurgence of credit loss expenses over the period.
FBN Holdings closed half year operations in June 2020 with gross earnings of N296.4 billion. This is an increase of 5.7 percent year-on-year, slowing down from the first-quarter growth of 14.5 percent.
Non-interest income remains the exclusive revenue growth driver for the bank so far – which is led by net gains on the sale of investment securities and net gains from financial instruments. The income lines jumped 600 percent to over N26 billion and 251 percent to over N7 billion respectively over the review period.
Net losses were recorded from financial instruments in the second quarter, which lowered the half-year net gains figure below the first-quarter closing of N8.34 billion. This again contributed to the loss of profit growth momentum in the second quarter.
Despite the setbacks, the bank is maintaining strong profit acceleration this year and profit improvement for the fourth consecutive year. The ability to navigate the bank through the volatile operating climate and keep up profit capacity is the summary of the operating story of FBN Holdings in the first half of the 2020 financial year.
FBN Holdings closed half year operations in June 2020 with an after-tax profit of N49.5 billion. This is a year-on-year growth of over 56 percent, which is a slowdown from roughly 63 percent advance in the first quarter. The strength for the profit growth came from revenue improvement as well as gain in profit margin.
Net profit margin continues to improve from 11.2 percent at the end of 2019 to 15.4 percent in the first quarter of the current year and further to 16.7 percent at half-year. This is the highest net profit margin for the bank in six years. The profit margin has improved every year for the bank since 2017.
The bank earned N1.35 per share at the end of half-year trading, rising from 84 kobo per share in the same period in 2019. It earned N1.98 per share at the end of 2019 and gave out 38 kobo per share in cash dividend.