FBNH released FY 2019 audited numbers yesterday which showed an increase in Pre-tax profit to N83.6 billion, compared to N73.6 billion reported in its earlier released unaudited numbers.
FBNH’s Interest Income grew marginally, up 1.6% y/y and largely in line with our forecast mainly due to a decline in yields on customer loans. While Net Loans to customers were up 10.9% y/y, Interest Income on those loans declined 6.8%.
Interest Expense also grew marginally, up 1.4% y/y despite an 11.9% y/y growth in Interest Bearing Liabilities reflecting a decline in funding cost on the back of the low-interest rate environment. Net Interest Income was up 1.7% y/y. Overall, NIMs declined to 7.7% in December 2019 compared to 7.8% in December 2018.
Net Fee and Commission Income grew moderately, up 11.2% y/y. The y/y growth was mainly on the back of significant growth in E-banking income (up 41.2%y/y) and credit-related fees (up 104.7% y/y), letters of credit commission (up 49.0% y/y) and other fees and commission (up 30.1% y/y).
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Other Income (Net Insurance Premium, Net gains on investment securities, Net gains or loss on financial instruments, Dividend Income, Other Operating Income) was up 32.9% y/y.
Impairment charge declined 41.5% y/y to N51.1 billion, compared with N87.5bn for FY 2018, resulting in a decline in Cost of Risk (COR) to 2.6% compared to 4.3% for FY 2018. The bank’s NPL ratio declined further to 9.9% from 24.7% for FY 2018 The bank’s management had advised that NPL will drop below 10% by year end.
OPEX increased significantly, up 18.% y/y. This, coupled with only a marginal increase in total operating income led to a deterioration in cost to income ratio (ex-provisions) to 73.0% in FY 2019 compared to 63.4% in the same period of 2018. The y/y growth in opex was mainly on the back of significant growth on other operating expenses, up 21.2% y/y driven by mainly by advert and corporate promotions costs (up 135.5% y/y) and operational and other losses which grew to N20.4bn in December 2019 from only N6.9bn in December 2018. Management, however, noted that majority of the costs are one-off. We forecast CIR declining to 63.4% in 2020e.
Capital Adequacy Ratio (CAR) of 15.5% was reported for FBN Nigeria, almost at par with the regulatory limit of 15.0% and compared with 17.3% for FY 2018. We are concerned about FBN’s capital ratios especially in the light of CBN’s 65% minimum LDR ratio which may likely be increased further. Current macro conditions also call for worry given reduced oil prices and talks of devaluation which will bring issues of asset quality and reduced capital for many banks. Detailed analysis as to how we expect this to impact FBNH will be communicated in our update note.
Pre-tax profit was up 13% y/y while Net profits were up 4% y/y bringing FY 2019 RoAE to 12.4% compared to 9.7% for FY 2018.
The bank announced a dividend of N0.38/s, implying FY 2019 dividend yield of 9.5% based on yesterday’s closing price of N4.00/share.
Despite a strain in capital which caps our near-term growth outlook, we still find valuations compelling (PBV 0.2; PE 2.1). We have a Buy rating on the stock with a target price of N12.13/s. Current price: N4.00/s. We expect a tough 2020e for our coverage banks given the impact of COVID-19 and the decline in oil prices.
The group will host a teleconference call with analysts and investors on the audited results for the full year 31 December 2019 on Wednesday 08 April 2020 at 12:00 pm UK / 12:00 pm Lagos / 07:00 am New York / 1:00 pm Johannesburg & Cape Town.
The teleconference call facility can be accessed by dialling: +234 1 277 6330 (Nigeria); 0800 279 7204 or +44 330 336 9411 (United Kingdom); 888 254 3590 or +1 323 994 2093 United States); and 0800 980 520 or +27 11 844 6118 (South Africa) and then entering the following confirmation code: 8572467#.
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Member of the Nigerian Stock Exchange,
First City Plaza, 44 Marina,
PO Box 9117,
Lagos State.
