FBN Holding’s profit rises 126.8%, analysts forecast positive outlook

FBN Holdings PLC consolidated its top-tier ranking with a strong performance in the 2023 financial year and the first quarter of 2024, reporting significant growth in gross earnings and pre-tax profit of 95.7 percent to N1.6 trillion and 126.86 per cent to N350.59 billion respectively for the 2023 financial year.

First quarter results for 2024 recorded even stronger growth performance with gross earning and profit before tax rising 181.43 per cent and 325.15 percent respectively despite headwinds propelled by increasing operating costs and foreign exchange impairments. In a note to investors, Proshare Strategic Advisory Group notes that FBNH results underline the group’s resilience in the face of internal and external difficulties.

Analysts believe the CBN’s payment of Heritage Bank’s debt not only signaled a positive outlook for its subsidiary, First Bank, with the reduction of the forbearance balances on FBNH’s books but strengthened its position as a systemically important bank (SIB).

Some experts said the bank’s performance is a testament to the strong leadership provided by erstwhile Group Managing Director, Dr Adesola Adeduntan-led executive management team, who resigned his position in April after serving a record nine years at the helm. A member of that team has since succeeded him, further affirming a transition that should lead to better outcomes. Detailed analysis of the group’s results indicates a positive outlook overall as financial ratios continue to improve.

The results showed that earnings growth came from interest and non-interest income, narrowed down to investment securities, loans and advances, gains from (fair value through profit or loss) FVTPL (derivatives) and fees and commission income.

Interest income had a higher contribution at 60 percent relative to 40 percent from non-interest income, reflecting that core operation drove the income growth. The 153.67 per cent growth in non-interest income to N601.7 billion was driven by net gains from financial instruments at FVTPL (N246.08 billion), net gain on sale of investment securities (N34.85 billion) and fee and commission income (N226.45billion).

Analysts noted that the commercial banking segment remained the lead gross earnings driver, contributing 94 percent, while merchant bank and asset management contributed six percent. Macroeconomic factors, notably the persistence of naira depreciation and aggressive rate hikes impacted interest and non-interest growth in Q1 2024.

“The improvement came partly from higher interest and non-interest incomes and sustaining this in 2024 is crucial, considering the forecast direction of macroeconomic indicators and monetary policy. For instance, rising inflation and currency volatility may lead to higher interest rates, a situation usually favourable to banks’ loans and advances,” analysts said.

The income from sales of investment securities, gains from financial instruments, FVTPL, dividend income, and other operating income cushioned the foreign exchange loss of N332.79 billion, personnel expenses growth (52.58 percent) and operating expenses growth (49.59 per cent). In addition, the group earned N66.34 billion from digital banking in FY 2023, 20.41 per cent higher than N55.10bn in FY 2023. This shows an improvement in digital penetration and product usage. The substantial profit growth nudged earnings per share to N8.59k in FY 2023 from N3.75k in FY 2022.

Analysts expect the aggressive rate hike and naira volatility to sustain profitability performance in most of the 2024 quarters. On the core operational side, the group’s customer deposits rose by 49.68 percent to N10.66 trillion, and deposits from banks increased by 70.88 per cent to N1.89 trillion in FY 2023 over the previous year while shareholders’ funds improved by 75.45 per cent to N1.75 trillion, driven by a 48.09 per cent rise in retained earnings, 531.43 percent growth in foreign currency translation reserve and 35.38 per cent in statutory reserve.

Overall financial position improved in FY 2023 as total assets rose by 60.13 percent to N16.94trn up from N10.58trn in FY 2022. While share capital remained constant, shareholders’ equity rose by 91.44 percent in Q1 2024 to N1.92trn, driven by an 83.57 percent rise in retained earnings and 1292.46 percent growth in foreign currency translation reserve.Improved gross earnings and profitability impacted key valuation metrics as return on equity (ROAE) and Average Assets (ROAA) rose to 22.60 percent and 2.30 percent respectively in FY 2023 up from 14.50 percent and 1.40 percent respectively in FY 2022.

Similarly, Return on equity (ROE) and assets (ROA) grew to 45.40 percent and 4.30 percent, respectively, with the cost-to-income ratio (CIR) falling to 43.10 percent down from 60.40 cent in Q1 2023 implying better cost optimization.Proshare analysts noted that the positive trend continued with the group’s loan-to-deposit ratio increasing to 62.20 percent above the 65 percent statutory limit, exempting it from discretionary CRR debits.

FBNH’s share price rally moved its market capitalisation closer to the trillion-naira mark, settling at N809.44bn as of May 23, 2024. This rally fed into key investors’ metrics for the company.Proshare analysts also expressed optimism about the bank’s recapitalisation prospects as FBNH’s positive financial numbers would suggest it would have no problems in raising the proposed N300bn in fresh capital to meet the new regulatory requirements for Tier 1 banks either through a public offer or a private placement.