FBN Holdings’ Reassuring Performance

Goddy Egene writes that the financial results of FBN Holdings Plc for 2017 have validated the assurance the group gave its stakeholders on improved performance

“I want to assure our esteemed shareholders that FBN Holdings is actively preparing for the future and the challenges ahead with the advancement of the group’s innovative projects and continuous extraction of the opportunities that abound in our holding structure. Overall, we are better positioned to deal with the shocks to our businesses and to sustain our growth momentum.

“Having completed the most challenging period of our journey which saw us recognise an outsize impairment charge and now that we can clearly see improved results beginning from 2017 financial year, shareholders have every reason to be optimistic of higher return on their investment.”

The above were the words of assurance given to the shareholders and other stakeholders of FBN Holdings Plc by the chairman, Oba Otudeko and group managing director respectively last year at the annual general meeting (AGM) in Lagos.

The assurance became necessary following the huge impairment charges recorded by the bank, which affected its bottom-line. The bank posted impairment charges of N226 billion, which was 38 per cent of the gross earnings for the 2016 financial year. Also, non-performing loan ratio deteriorated to 24.4 per cent in 2016, compared with 18.1 per cent in 2015 and far above five per cent stipulated industry requirement. Based on the above the board and management had to assure of better results going forward. And given the audited results for the year ended December 31, 2017, stakeholders have been reassured of a brighter future.

2017 Financial Results
FBN Holdings posted gross earnings of N595.4 billion, up marginally by 2.3 per cent from N581.8 billion in 2016. Net interest income rose by 15.9 per cent from N405.3 billion to N331.5 billion, while non-interest income fell by 31 per cent from N165.5 billion to N113.7 billion. However, impairment charges for credit losses reduced by 33.5 per cent to N150.4 billion, from N226 billion in 2016.

The financial institution tried to curtail operating expenses, which grew by only 7.7 per cent to N238 billion, from N221 billion the previous year. Consequently, profit before tax jumped by 147.6 per cent to N56.8 billion, compared with 22.9 billion in 2016. But PAT grew faster by 178.9 per cent to N47.8 billion from N17.1 billion in 2016. Earnings per share improved from 39 kobo to 121 kobo. The directors are recommended a dividend of 25 kobo per share.

A further analysis of the results showed non-performing loan ratio improved from 24.4 per cent to 22.8 per cent, just as liquidity ratio reduced from 52.7 per cent to 51.1 per cent. Capital adequacy ratio stood at 17.1 per cent compared with 17.8 per cent in 2016.
Customers’ deposits, which is a reflection of preference for the franchise, rose from N3.10 trillion to N3.14 trillion. Non-performing loans reduced from N584.2 billion to N520 billion, while shareholders’ funds improved from N582.6 billion to N678.2 billion in 2017.

Firm explained performance
Commenting on the results, the Group Managing Director of FBN Holdings Plc, Mr. UK Eke said the initiatives they put in place were producing encouraging results ahead their projections.
“It is noteworthy to highlight that this progress has not been detrimental to our commitment to cost containment, illustrated by the 7.7 per cent increase in opex which is significantly below the headline inflation rate of 15.4 per cent. This result was also made possible by the successful implementation of our digitisation initiatives, that have allowed us to serve our customers in a more efficient and effective way,” he said.

He assured the shareholders that the company would intensify efforts to recover all NPL.
According to him, loan recovery has been a core focus of the leadership team of the bank, pointing out that there is a special committee set up to address it, just as an asset management units had been created for the purpose.

“Even though we have not recorded a full resolution of our NPL, we have made significant progress in dealing with a number of these names and more fundamentally, ensured a strong asset quality from recent credits. As a result NPL for the period declined from 24.4 percent in 2016 to 22.8 percent in 2017,” he said.

Also speaking at the event, the Chairman of FBN Holdings Plc, Mr. Oba Otudeko had said the flagship subsidiary of the Group, First Bank Nigeria Limited, sustained its leadership position in the e-payment space, emerging as the first financial institution in Nigeria and West Africa to issue 10 million cards to customers. He added that the bank was recognised as the first financial institution in Nigeria to achieve an electronic transaction volume of 100 million in a month.
Otudeko FBN Holdings would consolidate on the progress made in the previous year to deliver a strong and sustainable performance that enhances returns to shareholders.

Commercial Banking Contribution
The commercial banking business contributed 90.1 to gross earnings of the group and 77.6 per cent to its profit compared with 36 per cent contribution to profit in 2016.
Speaking on the results the MD/CEO of FirstBank and subsidiaries, Dr. Adesola Adeduntan, said: “The commercial banking group has delivered a good performance, despite the still challenging macro-economic environment, with gross earnings up 1.1 per cent, PBT was up 435 per cent and PAT up by 337 per cent.

According to him, the financial results were due to the ongoing disciplined execution of our 2017 – 2019 Strategic Corporate Transformation Plan with 2017 being the first year of execution.
“The results achieved so far shows that we are on the right track and in 2018 and beyond we are focusing on accelerating the pace of execution of the plan with emphasis on strengthening our technology infrastructure to drive efficiencies; developing and promoting a full digital and transaction banking offerings; sustaining and accelerating the disciplined lending drive, with targeted recoveries, and an improved focus on managing operational risks; whilst continuing with the ongoing repositioning and strengthening of African subsidiaries to optimize returns. Our aim is to return to be the market leader in the industry with the disciplined execution of these various initiatives,” he said.

Improved Electronic Banking
A look at the fees and commission (F&C) income showed that electronic banking fees contribution to the total F&C income increased to 33.6 per cent from 30.6 in the prior year. This, according to bank, demonstrates the strong revenue generation capacity of the group through alternative channels as it remain focused on enhancing its digital offerings and further deepening initiatives to support its revenue generation capabilities.

“In the course of the year and recently, we celebrated a number of unique leadership recognitions, amongst which was First Bank being the first financial institution in the Nigerian and West Africa sub-region to issue 10 million cards to customers. In addition, the bank won the awards for the “fastest mobile penetration bank across Africa”, “highest card transacting bank” and “highest issuer of Verve cards”. Furthermore, N1 trillion transactions were processed on the #894 USSD banking channel making it the fastest growing USSD product in the industry,” it said.

To further strengthen its revenue base and following a successful pilot, FirstBank is systematically rolling out the agent-banking model this year, leveraging on its unique wide distribution.
“Additionally, the bank is enhancing its trade finance and cash management capabilities to support transaction banking offerings. Similarly, another critical focus is to enhance the contribution from the subsidiaries to the group’s profit from increased performance, synergy and collaboration,” it said.

Insurance subsidiary
Apart from the banking group that showed improved performance, the insurance subsidiary also sustained its positive performance. The subsidiary contributed 9.0 per cent to total non-interest revenue of the group in 2017, up from 5.1 per cent the previous year. Gross Premium Written increased by 90.8 per cent to close at N22.8 billion, up from N11.9 billion in 2016 while PBT rose by 38 per cent toN4.7 billion, from N3.4 billion in 2016.

According to the company, driven by the retail segment, the life insurance business continued to validate the retail market strategy as increasing access to the large annuity market further support the strong performance.

“In partnership with Sanlam, the group is leveraging on the technical capabilities and exchange of ideas/practices to significantly enhance technical and risk management expertise. Similarly, we are institutionalising operational efficiency across key functions. Some of the key strategic initiatives also in focus include maintaining a disciplined cost optimisation strategy, continuous transition towards a digital focused and technology driven business to achieve an end-to-end process automation and improved service delivery,” the company said.