FBN Holdings Plc is still going strong on earnings growth this year despite a further slowdown in the third quarter ended September 2020. The bank began the financial year with a cruising level profit advance of 63 per cent in the first quarter, which slowed down to 56 per cent at half-year and further to 31.5 per cent at the end of the third quarter.
That keeps the bank on the speed lane on profit performance for the fourth straight year, also representing one of the strongest profit improvements in the banking industry so far this financial year.
Gross earnings also slowed down from the record growth of 14.5 per cent in the first quarter to roughly 6 per cent at half-year and further down to 5 per cent at the end of the third quarter. The bank retains the ability to convert an increased proportion of revenue into profit, which is its strength in operations this year.
Profit margin is up from 12.4 per cent in the same period last year to 15.5 per cent at the end of the third quarter. This is the highest profit margin the bank is seeing any time since 2015. Profit margin has improved every year for the bank since 2017.
The gain in profit margin has provided the ability to lift profit well ahead of revenue this year. At the end of the third quarter, after-tax profit grew more than six times ahead of gross earnings.
A big challenge keeps coming from credit loss expenses, which gained further speed in the third quarter from 39 per cent rise year-on-year at half-year to a 64 per cent jump to N46.7 billion at the end of September. Loan impairment charges are growing for the first time in four years after dropping consistently over the past three years.
The rising credit loss expenses explain the slowing growth in profit over the past two quarters. Conversely, the drops recorded in the charges for loan losses over the past three years powered the strong profit advances recorded in those years. In three years to 2019, FBN Holdings grew net profit by an average of 84.6 per cent.
The drawback on revenue performance continues to come from interest earnings, which increased the pace of decline from 4 per cent at half-year to 7 per cent year-on-year at the end of the third quarter.
Declining interest income is against an increase of 11 per cent in customer credit volume to over N2 trillion at the end of the third quarter from the closing figure last year. Lending to other banks is also up by 8 per cent to N815.6 billion but investment securities dropped by 10 per cent to about N1.3 trillion over the same period.
Cost-saving from interest expenses achieved in the second quarter was reinforced in the third. Compared to a marginal increase of 1.4 per cent in interest expenses at half-year, a year-on-year drop of 9.5 per cent to N105 billion was recorded at the end of the third quarter. This follows a drop of roughly 30 per cent in interest expenses quarter-on-quarter in the third quarter.
The drop in the cost of funds reflects an accelerated growth in low-cost customer deposits from 9 per cent at half-year to 15 per cent to N4.6 trillion at the end of the third quarter. The impressive growth in customer deposits is happening for the bank for the second year.
The development strengthened net interest income and moderated the impact of the resurgence of credit loss expenses on earnings over the period.
FBN Holdings closed the third quarter operations in September 2020 with gross earnings of N439.3 billion. This is an increase of 5 per cent year-on-year, a continuing slowdown from the first quarter record of 14.5 per cent.
Non-interest income remains the exclusive revenue growth driver for the bank so far – which continues to be led by net gains on the sale of investment securities and net gains from financial instruments. The income lines jumped 452 per cent to over N41 billion and 122 per cent to N7.7 billion respectively over the review period.
There was a sharp drop in net gains from financial instruments in the third quarter, which contributed to the loss of revenue and profit growth momentum during the period.
Through the improvements and setbacks, the bank’s management maintained a strong profit improvement at the end of the third quarter. FBN Holdings closed the third quarter operations in September 2020 with an after-tax profit of N68 billion. This is a year-on-year growth of 31.5 per cent, which is a slowdown from over 56 per cent growth at half-year. It remains an impressive performance for the bank, which is powered by a gain in profit margin.
The ability to navigate the bank through the volatile operating climate and keep up profit capacity remains the summary of the operating story of FBN Holdings at the end of the third quarter of the 2020 financial year.
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.
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