Business and Economy

Financial results of FBN Holdings 2023 – Investment yields and loan expansion support earnings

FBN Holdings 
Investment yields and loan expansion support earnings

Stock Rating: HOLD
Price Target: N26.76
Price (2 FEB 2024): N26.02
Potential Upside / Downside: +2.1%
Tickers: FBNH NL
In its FY 23 results released yesterday, FBN Holdings (FBNH) reported Pre-tax profits (+129.4% y/y) and Net profits (+128.4% y/y) growth during the period.  Similarly, Q4 23 stand-alone Pre-tax profits (+75.4% y/y) and Net profits (+63.5% y/y) recorded positive improvements.
 Earnings for the year were primarily driven by growth in Net Interest Income, following improvement in yields on investment securities, and 68% growth in customer loans.  The stock is up 11.3% y-t-d. The markets’ reaction to the results has been positive.
Improved yields on investments support NII

Interest income rose by 66.3% y/y, primarily driven by improved yields on investment securities (10.1% y/y, vs 3.6% y/y in 2022) which grew by 31.4%, and a 48.9% increase in interest income from loans and advances to customers which expanded by 68.0% during the year. The improvement in market interest rates, particularly in Q3 23, we believe, supported this performance. 

Elsewhere, Interest expense grew by 105.5% driven by a substantial rise (over 100%) in interest expense payment on deposits from financial institutions and banks. Term deposits for the period climbed by 139.7% during the period, 102.7% more than the growth in CASA deposits, and as a result the CASA mix deteriorated to 76.2% y/y (versus 84.5% in the preceding period). This decline led the groups’ cost of funds to increase to 3.4%. Net interest income, however, grew by 45.9% y/y with the NIM adding 10 basis points to 5.4%, by our estimation.

Trading revenues prop NIR

Non-interest Income expanded by 149.6% y/y to N566.99bn. This growth was majorly driven by 442.1% growth in Trading revenues for the period, particularly trading gains from financial assets. Other incomes for the period grew by 33.0%, specifically supported by recoveries from seized assets and sundry income.

Operating expenses grew by 46.8% y/y propped by maintenance costs, the regulatory levy, and advertising and promotion costs for the period. The cost-to-income ratio improved to 48.7% (versus 61.6% in FY 22). Pre-provision operating profits grew by 148.4% y/y to N562.3bn. Loan loss provisions increased by 192.1% y/y, consequently, the cost of risk rose to 3.8% vs 2.0% in FY 22. Overall, the Group’s Net profits rose by 128.4% y/y to N307.34bn.

Asset Quality

The NPL ratio as of 9M 23, declined to 4.6% from 4.3% in FY 22, although below the regulatory regulatory limit. We note that this is a significant improvement following a steady decline from 24.7% in 2018.

Board structure change
Mr. Femi Otedola was announced recently as the new Chairman of the board of Directors for FBN Holdings, succeeding Alhaji Ahmad Abdullahi. Notes in the FY 23 financials show that 1.99bn shares, directly and indirectly, are held by the new chairman. This equates to 5.7% of FBNH’s outstanding shares. We believe that this has contributed to the recent rally in the stock.

We find the significant increase in customer loans promising. Maintaining this growth momentum, alongside the marginal uptick in market rates expected in 2024, is expected to favourably impact the groups’ funded income. SOURCE: Coronation Merchant Bank

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