FBN Holdings Stays Against The Trend, Hits N97bn Foreign Exchange Loss In Q3

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With its substantial offshore assets so far this year, FBN Holdings Plc stayed off the track of foreign exchange windfall reaped by banks and closed the third quarter operations with a net foreign exchange loss of N96.7 billion.

At the peak of the huge foreign exchange gains by banks in the second quarter, the bank incurred a net foreign exchange loss of over N101 billion – which netted off the previous modest gain in the first quarter and another slight gain of N1.7 billion in the third quarter, still leaving the huge loss at the end of the third quarter.

This is a deep plunge from a foreign exchange gain of a little over N2 billion in the same period last year, which runs opposite the trend, particularly among the leading banks so far this year. The development leaves FBN Holdings well behind in the massive expansion of bank balance sheets among the banking majors.

The bank’s third quarter interim financial report at the end of September 2023 however shows that the bank windfall came from a different quarter entirely.

Net gains from financial instruments multiplied more than 11 times year-on-year to N246 billion to absorb the foreign exchange loss and yet lift the group’s bottom line a clear 159 percent to N236.4 billion at the end of the nine months of operations.

As much as N232 billion of the net gain on financial instruments was realised in the second quarter, overwriting a net loss of N2 billion on the same in the first quarter with a top-up of more than N16 billion in the third quarter.

The closing figure for the nine months of operations is a massive increase from a net gain on financial instruments of less than N22 billion in the same period last year.

Another major boost in earnings came from interest income, which grew by 71 percent year-on-year to N633.8 billion at the end of the third quarter. This represents outstanding growth in interest income for the second year after an almost 50 percent leap at the end of 2022.

The strong revenue growth from the two main income lines of the bank powered an increase of 97.8 percent in gross earnings to close in excess of N1 trillion at the end of the third quarter, already above the N805 billion gross income at the end of last year.

The bank was pressured by two other major rising costs in addition to the huge foreign exchange loss. The first is the net impairment charge on credit losses, which rose by 124.4 percent to stand at N82.4 billion at the end of the review period.

The second is interest expenses, which advanced by 112 percent from N120.8 billion in the same period last year to over N256 billion at the end of the third quarter. This remains a much faster increase in interest expenses than interest earnings – which grew by 71 percent over the same period.

The two major rising costs continued to eat deep into interest income and limited the increase in net interest income after loan impairment charges to 38.8 percent to a little over N295 billion at the end of the nine months of trading.

Some respite came from cost savings from operating expenses, which grew by 33.3 percent to N352 billion compared to a near doubling of gross earnings.

The operating cost margin went down from 48.3 percent to 32.6 percent over the review period, a major reduction in the average cost of generating the naira of the bank’s revenue.

As happened at the half year, the inflow from net fair value gain on financial instruments with the cost saving from operating expenses changed the earnings story of the bank, lifting operating profit by 155.8 percent to almost N270 billion.

The bank converted an increased proportion of revenue into profit at 21.9 percent at the end of the third quarter compared to 16.7 percent in the same period in 2022.

Group after-tax profit jumped more than two and half times from N91.3 billion in the same period last year to N236.4 billion at the end of September 2023. The bank ended the 2022 full year with an after-tax profit of N136 billion.

FBN Holdings closed the third quarter operations with earnings per share of N6.54, up from N2.51 per share in the same period last year.

The bank closed the third quarter with a balance sheet size of N14.4 trillion, an increase of close to N4 trillion over the closing figure last year.

The full-year earnings outlook of the bank is shaped by the two major rising costs with the huge exchange losses against the impressive revenue performance.

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