FBN Holdings Plc. (“FBNH” or “FBNHoldings” or the “Group”) has announced its audited results for the full year ended 31 December 2018.
• Gross earnings of ₦583.5 billion, down 2.0% year-on-year (y-o-y) (2017: ₦595.4 billion)
• Net-interest income of ₦284.2 billion, down 14.3% y-o-y (2017: ₦331.5 billion)
• Non-interest income of ₦131.7 billion, up 15.8 % y-o-y (2017: ₦113.7 billion)
• Operating income of ₦415.9 billion, down 6.5% y-o-y (2017: ₦444.8 billion)
• Impairment charges of ₦86.9 billion, down by 42.2% y-o-y (2017: ₦150.4 billion)
• Operating expenses of ₦263.7 billion, up 9.7% y-o-y (2017: ₦240.3 billion)
• Profit before tax of ₦65.3 billion, up 19.7% y-o-y (2017: ₦54.5 billion)
• Profit after tax ₦59.7 billion, up 31.4% y-o-y (2017: ₦45.5 billion)
• Proposed dividend per share of N0.26 (2017: N0.25)
Statement of Financial Position
• Total assets of ₦5.6 trillion, up 6.3% y-o-y (Dec 2017: ₦5.2 trillion)
• Customer deposits of ₦3.5 trillion, up 10.9% y-o-y (Dec 2017: ₦3.1trillion)
• Customer loans and advances (net) of ₦1.7 trillion, down 15.9% y-o-y (Dec 2017: ₦2.0 trillion)
• Pre-tax return on average equity of 10.8% (2017: 8.7%)
• Post-tax return on average equity of 9.9% (2017: 7.3%)
• Pre-tax return on average assets of 1.2% (2017: 1.1%)
• Post-tax return on average assets of 1.1% (2017: 0.9%)
• Net-interest margin of 7.5% (2017: 8.4%)
• Cost to income ratio of 63.4% (2017: 54.0%)
• NPL ratio of 25.9% (Dec 2017: 22.8%)
• 45.2% liquidity ratio (FirstBank (Nigeria) (Dec 2017: 49.3%)
• 17.3% CAR (FirstBank (Nigeria) (Dec 2017: 17.7%)
• 12.2 % CAR (FBNQuest Merchant Bank) (Dec 2017: 13.5%)
• The credit rating outlook for the Group was revised from Negative to Positive by Fitch Ratings
• The Commercial banking business strengthened its competitive position with reorganisation and recapitalisation in key markets to increase the contribution of international subsidiaries
• Chuma Ezirim was appointed Group Executive, E-Business and Retail Products with a mandate to accelerate FirstBank’s strategic execution of digital initiatives and E-Business product offerings
• The Commercial Bank reaffirmed its leadership in retail banking with effective coverage of the country via the agency banking initiative with about 15,000 agents, thereby deepening financial inclusion
• Received regulatory approval to commence the implementation of a Group Shared Service Initiative.
Commenting on the results, UK Eke, the Group Managing Director said:
“Over the course of the 2017 – 2019 strategic cycle, the priority for management has been to strengthen the various businesses across the Group and position for sustainable growth over the long term. Our three-pronged approach has primarily been to drive long-term revenue generation capabilities, overhaul risk management processes and drive efficiency across our businesses.
We have seen significant results in our revenue diversification aspiration, with improving digital banking offerings which have enhanced our non-interest income from the commercial banking group. Similarly, there has been steady growth in contribution to the revenue pool of the Group from the insurance business and the merchant banking business, helping to further reinforce the revenue generation capacity of the Group.
The revamp of our risk management architecture, which is one of the key enablers to our shareholder value creation aspiration, will ensure our revenue generating capacity translates to stronger growth in profitability now that we have materially progressed in resolving the legacy issues as evidenced by the full provision for the largest NPL in our loan book.
Finally, we have also focused on driving operational efficiencies across the Group by leveraging technology, improving processes and increasing synergies across various entities.
In 2019, we expect growth in interest income to complement our growing non-interest revenue as we undertake guided expansion of the loan book which contracted in the last two financial years.”
Group Financial Review
Gross earnings amounted to ₦583.5 billion (2017: ₦595.4 billion), representing a marginal drop of 2.0% y-o-y. This was due to a 7.5% decline in interest income on the back of a decrease in the loan book as well as the depressed yield environment which led to a decline in income from investment securities. However, the drop in gross earnings was partially offset by the 15.8% y-o-y growth in non-interest income. Interest income and non-interest income contributed 74.5% and 22.6% (2017: 78.9% and 19.1%) respectively to gross earnings.
Net Interest income decreased by 14.3% y-o-y to ₦284.2 billion (2017: ₦331.5 billion) largely on account of the contraction in the loan book and the decline in investment securities’ income, which were in part mitigated by an increase in income from loans to banks. Income from customer loans declined by 9.1% y-o-y to ₦262.4 billion (2017: ₦288.6 billion). Investment securities’ income declined by 13.0% y-o-y to ₦150.8 billion (2017: ₦173.3 billion). Income from loan to banks was up 174.4% y-o-y to ₦21.2 billion (2017: ₦7.7 billion). Income from customer loans and income from investment securities accounted for 60.4% and 34.7% of total interest income in 2018 respectively, compared to 61.5% and 36.9% in 2017. Interest expense however, increased by 8.8% y-o-y to ₦150.2 billion (2017: ₦138.1 billion) largely driven by 7.6% y-o-y increase in interest on customer deposits resulting from 10.9% y-o-y growth in deposits from customers.
Cost of funds remained flat at 3.4% (2017: 3.4%), primarily on the back of the improvement in the Group’s funding mix evidenced by the 18.7% y-o-y growth in low-cost deposits which now account for 77% of total deposits (2017: 72%). We have remained focused on keeping our cost of funds low despite the tight liquidity and competition in the market.
On the other hand, yields declined during the year. Accordingly, average yields on customer loans closed at 13.2% (2017: 14.1%) while yields on investment securities declined to 10.1% (2017: 13.4%). Overall, the blended yield on interest earning assets declined to 11.4% from 11.9% in the previous year resulting in net interest margin declining to 7.5% (2017: 8.4%).
Non-interest income (NII) increased by 15.8% y-o-y to ₦131.7 billion from ₦113.7 billion in the prior year, driven by the 24.5% y-o-y growth in fees and commission income to ₦92.7 billion (2017: ₦74.5 billion) on the back of growing contribution from digital banking channels. Furthermore, as a result of increased foreign currency volatility, foreign exchange income increased by 55.0% to ₦32.6 billion (2017: ₦21.1 billion) representing 24.8% of non-interest income against 18.5% in the prior year. Excluding FX revaluation gains, NII increased by 12.4% demonstrating the sustainability of our non-interest revenue streams.
The contribution of fees and commission (F&C) income to total non-interest income further increased from 65.5% in the previous year to 70.4%. The key drivers of F&C remained electronic banking fees and account maintenance fees which grew by 36.2% y-o-y and 84.4% y-o-y to ₦34.0 billion (2017: ₦25.0 billion) and ₦12.3 billion (2017: ₦6.7 billion) respectively. In addition, brokerage and intermediation fees recorded a marked 665.9% y-o-y growth to ₦11.9 billion (2017: ₦1.6 billion). Other drivers include: 7.6% y-o-y growth in custodian fees to N6.4 billion (2017: ₦6.0 billion); 51.4% y-o-y increase in fund management fees to ₦3.0 billion (2017: ₦2.0 billion); as well as 48.8% y-o-y growth in other fees and commissions income to ₦3.9 billion (2017: ₦2.6 billion). The improvement in F&C was partly offset by the combined effect of a 28.9% y-o-y decline in letters of credit commission and fees to ₦4.3 billion (2017: ₦6.0 billion), 34.2% y-o-y decline in money transfer commission to ₦2.4 billion (2017: ₦3.6 billion) as well as 67.5% y-o-y decline in credit related fees to ₦2.4 billion (2017: ₦7.4 billion).
The Group remains focused on growing its non-interest income as shown in the improving contribution of the non-commercial banking business to the group revenue and profitability. This has been driven by increasing synergies and collaboration across our businesses. During the year net insurance premium increased by 51.9% to ₦15.5 billion (2017: ₦10.2 billion), representing 11.8% contribution to non-interest revenue from 9.0% in 2017. In addition, the commercial banking business continues to deepen the strategic push of increasing the transaction-based revenue through innovations and continuous digitalization of financial products and services to better serve the customers.
Operating expenses increased by 9.7% y-o-y to ₦263.7 billion (2017: ₦240.3 billion) but remained below the headline inflation rate of 11.4%. Staff related costs (35.4%) and regulatory cost (13.3%) jointly accounted for about half of operating expenses. While staff cost increased by 9.0% y-o-y following employee rejuvenation initiatives to drive increased productivity, regulatory costs grew by 3.9% y-o-y due to the 6.2% y-o-y increase in total asset of the commercial bank in 2017. Other cost drivers can be attributed to the inflationary pressures as well as the Group’s ongoing transformation related expenses expected to enhance revenue generating capacity, improve operational efficiencies and enhance risk governance.
Cost-to-income ratio closed at 63.4% (Dec 2017: 54.0%) in FY 2018. The weakened ratio is essentially driven by the constrained operating income from the moderated lending and the declining yield environment even as operating expenses remain below inflation. Notwithstanding the current position, we remain optimistic on further enhancing our efficiencies in the near term, as we begin to derive the benefits of our investments in people, processes, innovation, technology and synergies.
Impairment charge for losses declined by 42.2% y-o-y to ₦86.9 billion (2017: ₦150.4 billion) as we continue to focus on remediation and recovery activities towards improving asset quality. Consequently, cost of credit risk decreased to 3.5% (2017: 6.4%). We remain committed to materially resolving legacy non-performing loans and achieving a single digit NPL ratio in the current financial year.
Profit before tax increased by 19.7% y-o-y to ₦65.3 billion (2017: ₦54.5 billion). Income tax expense for the year was ₦5.5 billion (2017: ₦9.0 billion). Earnings per share increased by 43.5% y-o-y to ₦1.65 (Dec 2017: ₦1.15).
Statement of Financial Position
Total assets increased by 6.3% y-o-y to ₦5.6 trillion (Dec 2017: ₦5.2 trillion) driven by 33.3% y-o-y increase in investment securities to ₦1.7 trillion (Dec 2017: ₦1.2 trillion). Loans to banks & customers and investment securities constitute 76% of total assets (Dec 2017: 76%).
Total customer deposits grew by 10.9% y-o-y to ₦3.49 trillion (Dec 2017: ₦3.14 trillion). The growth in deposits was driven by a 21.8% y-o-y and 15.9% y-o-y increase in current and savings accounts to ₦915.3 billion (Dec 2017: ₦751.3 billion) and ₦1.2 trillion (Dec 2017: ₦1.0 trillion) respectively. In addition, domiciliary deposits grew by 20.6% y-o-y to ₦583.5 billion (Dec 2017: ₦484.0 billion). The continued healthy growth in the face of heightened competition underscores the confidence reposed in the Group by the public, the strength of our franchise as a time-tested financial institution. As a result, the ratio of the low-cost deposit to total deposits has further improved from 72.0% in 2017 to 77.0% at the Group and from 82.9% to 85.0% at FirstBank Nigeria respectively. Furthermore, core current and savings deposits are now 77.8% and 88.8% from 68.2% and 80.7% respectively in 2017, indicating the relative stable nature of these deposits.
Benefiting from our strong franchise, we are increasing the number of customers across our businesses with customers’ accounts at FirstBank currently at 15.7 million from 14.7 million in the prior year. We expect to continuously increase the number of customers leveraging on our agency banking network now located across the country. The retail business, with over 95% of total customer accounts in the books, generates approximately 67% of deposit base, and continues to provide very stable funding.
Total loans & advances to customers (net) declined by 15.9% y-o-y to ₦1.7 trillion (Dec 2017: ₦2.0 trillion). This is reflective of the weak macroeconomic environment that does not support aggressive risk asset creation. Nevertheless, the Group will fulfil its commitment on balance sheet growth and materially reduce its NPLs in the current financial year. As a testament to keeping the financial position of our business strong, we have made appreciable provisions with coverage ratio at 78.3% (Dec 2017: 61.9%). Moreover, at the end of the year, our biggest challenged exposure – Atlantic Energy, was fully provisioned.
Shareholders’ Funds closed at ₦530.6 billion (Dec 2017: ₦673.7 billion), this was on the back of the implementation of IFRS 9. However, while statutory reserve, foreign currency translation reserve and contingency reserve were up by 11.0%, 1.8% and 60.8% respectively to ₦93.3 billion (Dec 2017: ₦84.1 billion), ₦49.0 billion (Dec 2017: ₦48.1 billion) and ₦2.0billion (Dec 2017: ₦1.3 billion), statutory credit reserves was down to ₦33.6 billion from ₦42.8 billion in the prior year.
Capital adequacy ratio for FirstBank (Nigeria) remains strong at 17.3% (Dec 2017: 17.7%), 230bps above the regulatory minimum of 15%, while the capital adequacy ratio for FBN Merchant Bank closed at 12.2% (Dec 2017: 13.5%) above the 10% regulatory requirement for Merchant Banks.
Liquidity ratio for FirstBank (Nigeria) remains healthy at 45.2% (Dec 2017: 49.3%) above the 30% regulatory mark.