FBN Holdings Plc brought all its key cost components under control in the second quarter, which helped to moderate revenue disappointments and kept profit up at over N56 billion at the end of half-year operations.
The bank’s three main cost components are generating cost savings for it so far this year. Moving against the general industry trend, interest expenses slowed down and changed course from growing ahead on interest income to a moderated growth at the half year.
Interim report of the bank at half year ended June 2022 shows that interest expenses decelerated from a 43 per cent increase in the first quarter to 28.4 per cent at half year to stand at N73.4 billion. This is a moderated growth compared to a 40.5 per cent expansion in interest income during the same period.
Net credit loss expenses dropped by 23 per cent year-on-year to N10.4 billion at the end of half-year operations. This is a big cost-saving area for the bank this year after major increases in the preceding two years. Last year, the bank saw a major increase of over 48 per cent in loan impairment losses to roughly N92 billion.
Operating expenses, the third major cost component of the bank, also moderated at an increase of less than 22 per cent year-on-year to about N186 billion at the end of half year. Growing slightly below gross earnings, operating costs did not encroach on margins despite the inflationary pressure of the period.
The challenge for the bank during the period came from the revenue side of trading where a 20 per cent drop in non-interest income in the second quarter sums up the pressure. The drop was led by the occurrence of a net loss of N3.5 billion on financial instruments, reversing from a net gain of over N19 billion in the same quarter last year.
This is followed by a drop of over 73 per cent in other operating income quarter-on-quarter to N4.5 billion.
The revenue disappointments were partly remedied by major increases in foreign exchange income and net gains on the sale of investment securities during the quarter. Foreign exchange income jumped about six times from negative N2.2 billion to N10.8 billion quarter-on-quarter.
Also, net gains on the sale of investment securities advanced more than two times to N7.8 billion over the same period.
The revenue gains however could not counter the losses, resulting in a 20 per cent drop in non-interest income to N59.3 billion quarter-on-quarter in the second quarter compared to a 22 per cent increase in the first quarter.
Interest income provided the strength on the side of earnings in the second quarter at an increase of 41.4 per cent quarter-on-quarter to almost N117 billion. This exceeded the N109 billion interest income recorded in the first quarter.
Profit performance shows a slowdown from N32 billion after-tax profit in the first quarter to N24 billion in the second, which sums up to the bank’s N56.5 billion after-tax profit at the half year. Profit growth weakened from 107 per cent in the first quarter to 7.5 per cent in the second.
Dilution of strength and weakness of the bank’s first and second quarter was good enough to keep profit growing at 47 per cent year-on-year to N56.5 billion at the half year, slowing down however from 107 per cent profit advance in the first quarter.
Net profit margin is improved from 13 per cent in the same period last year to 15.7 per cent at the half year, down however from 17.9 per cent at the end of the first quarter.
The bank generated gross earnings of over N359 billion at the end of June 2022, which is an increase of 22.4 per cent year-on-year. This is one of the highest revenue improvements the bank has seen since 2013. Double digits growth in gross earnings is being recorded for the second year since 2017 after a 28 per cent increase to N757.6 billion at the end of 2021.
Leading the earnings growth is foreign exchange income, which recovered from insignificance in the same period last year to N16.5 billion at the half year. This is followed by interest earnings that grew by 40.5 per cent year-on-year to N226.4 billion over the period.
Interest income is maintaining a rebound in the current financial year for the first time in four years after a sustained drop from an all-time peak of N469.6 billion in 2017 to N369 billion in 2021.
With a step up in interest income and a slowdown in interest expenses, the bank raised net interest income by over 47 per cent year-on-year to roughly N153 billion at the end of June 2022.
FEN Holdings ended the half-year trading with earnings per share of N1.55, up from N1.05 in the same period in 2021.
The key developments to watch on the bank in the second half are whether interest and loan impairment expenses would stay moderated, interest earnings upturn sustained and non-interest income push back to positive growth.
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