Published On: Sun, Aug 5th, 2018

FBN announces bumper harvest as NPLs decline –Industry experts laud Management


A fall in necessary provisions for bad and doubtful debt has spurred FBN Holding Company (FBNH) to a historic four year profit before tax. The strategic decision by the Holdco’s management to reinforce risk management seems to be paying off as lower impairment charges combined with higher revenues from e-banking activities has propelled the financial supermarket to its highest half year profit after tax in four years.

FBNH’s post-tax profit was up 22.7 per cent to N28.3N billion in first six months of 2018, the highest growth it has recorded in the last four years. The appreciation was on the back of  a -15.5 per cent fall in impairment charges on loan losses to N52.7 billion and non-interest income, which grew 21.4 per cent in the first half of the year.

Analysts note that since First Bank Nigeria, the crown jewel of the Holdco’s business, resolved to restrict its single obligor limit to N30 million, and reduce the size of its risk asset, the group’s non-performing loans ratio (NPLs), which was the highest in the country’s financial industry, has continued to trend downward, dropping to 24.3 per cent in H1 2018 from 21 per cent in the same period last year. Its asset quality ratios were indicative of the progress it has made in recent times in terms of risk assets as they paint an encouraging picture with the cost of risk lowered to 4.7 per cent compared to 5.5 per cent in the first six months of 2017 and NPL coverage ratio was up to 68.2 per cent (H1 2017: 52.7 per cent). To achieve this, the group transformed its credit process by automating the evaluation and approval workflow.

The group’s decision to be conservative about its loan portfolio, having been struggling with steep toxic assets, is begging to have positive impact on its bottom-line, argued Moses Ojo, Head, Research and Business Development, PanAfrican Capital Plc.

“I expect them to post a very mild growth at the end of the year. I don’t see them achieving an elaborate performance at the end of this financial year,” he opined.

Improvement in non-interest income underpinned on 24.3 per cent uptick in e-banking, caused FBNH non-interest income to rise 21.4 per cent to N61.3 billion in H1 2018, helping to pull its gross earnings marginally up 1.6 per cent to N293.3 billion, despite Interest income dipping declined by 3.0 per cent attributable to lower yields on investment securities and constrained loan growth. The Group’s e-banking revenue has been on a steady growth since the first of 2017.

The drop in interest income by -3 per cent was traceable to the same magnitude of decline in FirstBank gross loans and advances to N1.78 trillion compared to N1.84 trillion it gave out in the first six months of 2017, though FBNQuest Merchant, another subsidiary of FBNH, grew its loan portfolio by 13 per cent with increased lending to agricultural sector doubling to 18.4 per cent during this period. Loans to manufacturing, information and communication and power and energy sectors suffered the most cut as the group continues to maintained conservative posture towards the growth of its risk assets. The group is aiming to grow its risk assets by 5 – 7 per cent from 7 – 10 per cent.

Asset quality still poses a major challenge to FirstBank, claimed Kayode Tinuoye, Financial Analyst, United Capital Plc, adding that the group now has more room to grow its loans books, having cut down its NPL.

Meanwhile, FBNH customer deposits increased 4 per cent as its gross loans to deposit ratio was down from 72.5 per cent at the end of 2017 to 67 per cent in June 2018.

And its NPL continues to trend downward, the group’s liquidity ratio (H1 2017: 50.4 per cent) and capital adequacy ratios (H1 2017: 17.6 per cent) have been improving, rising to 55 per cent and 18.1 per cent respectively in H1 2018.

FirstBank made significant recovery from its toxic assets in the downstream sector of oil and gas industry, slicing its NPL exposure to the sector to 5 per cent from 11.3 per cent in June 2017. This was on the back of the federal government payment of petrol subsidies owed oil marketers. The lender also was halved NPL in the general commerce sector to 2 per cent and cut bad loans in information and communication sector to 9.3 per cent in H1 2018 from 14.2 per cent in similar period in prior year . But despite improved crude oil prices in the international market, the bank’s delinquent loans in the upstream sector of the oil and gas industry went up to 54.2 per cent against 41.9per cent in H1 2017.

Group has to devise means to stem its rising cost of its merchant banking and asset management arm. Its operating cost shot up 23.8 per cent to N6.08 billion, while operating income contrasted -8.4 per cent in the first half of this year as it battled with the challenge of  lower yields in the fixed income market, a limited number of investment banking deals being completed and a highly competitive lending market. However, the operating cost of its commercial banking segment has been flat, growing just marginally less than 1 per cent, while its operating revenue dipped -2.2 per cent during this period.

Meanwhile, the insurance section of FBNH showed important improvement as gross written premium rose 48.2 per cent, operating income increased 26.8 per cent, driven largely by the retail segment of the Life insurance business, Annuity income as well as the corporate segment of the General insurance business and operating cost also upped 17.4 per cent.

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