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FBN Holdings Maintains Stability

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FBN Holdings - Investors King
  • FBN Holdings Maintains Stability

The stock market was last week awash with financial results for the nine months ended September 30, 2016. FBN Holdings Plc was among the companies that submitted their results. In line with expectations of that the challenging operating environment would impact negatively on most companies, some recorded outright losses, while others ended the period with improved bottom-lines. Although FBN Holdings recorded a marginal decline in profit before tax (PBT), it recorded growth in revenue, indicating stability in its performance.

Financial performance

FBN Holdings posted gross earnings of N417.3 billion, up by 7.0 per cent from N390 billion in 2015. Net-interest income improved by 5.2percent to N202.9 billion, from N192.9 billion in 2015, driven by a 38.4 per cent reduction in interest expense on customers’ deposits to N56.7 billion.

Non-interest income increased by 56.5 per cent to N131.0 billion, up from N83.7 billion. The increase in non-interest income was driven largely by the foreign exchange translation gain as well as fees and commission income. Foreign exchange income in the period increased to N68.4 billion, from N22.5 billion.

However, net impairment charge on credit losses came up to N114.7 billion, up from N46.6 billion, resulting from incremental provisions from oil and gas sector. Other sectors include construction, transport, general commerce and information services sectors. Consequently, cost of risk increased to 6.9 per cent as against 3.0 per cent), while Non-performing loan (NPL) ratio increased to 24.9 per cent, largely driven by the translation effect of the Naira devaluation.

As a result, the company ended the period with a profit after tax of N42.5 billion, showing a decrease of 15 per cent from N50.2 billion in 2015.

Commenting on the results, the Group Managing Director of FBN Holdings Plc, UK Eke said: “FBN Holdings’ performance has again demonstrated its underlying resilience despite the ongoing macroeconomic and business challenges with gross earnings and profit before tax closing at N417.3 billion and N57.5 billion respectively. This has been achieved through sustained revenue generation as well as increased cost efficiencies.

Although the current currency weakness is a challenge for our remedial process, we are steadfastly progressing on improving the overall risk management culture, governance and technology as well as the degree of compliance across the group. The Group remains committed to ensuring sustained improvement in our performance with a view to restoring shareholder value.”

Declined Opex

A further analysis of the results showed that operating expenses declined by 5.1 per cent to N161.8 billion, from N170.4 billion following broad range declines in: advert and corporate promotions, operational and other losses, maintenance, and regulatory cost.

The decline in operating expenses was, however, largely offset by staff costs (+4.6%, N2.9 billion) to N65.4 billion and to a lesser extent a 46.9 per cent increase in net insurance claims to N2.9 billion following the crystalisation of some operational risks in the ordinary course of business.

“Taking into consideration the current high inflation environment, a 5.1 per cent overall reduction in operating expenses is a testament to our commitment to drive cost efficiencies and instill operational excellence across our businesses,” the bank said.

Improved Cost-to-income ratio

Following strong operating income growth and a sustained decline in operating expenses, FBN Holdings cost-to-income ratio improved to 48.4 per cent, from 61.6 per cent.

“We remain steadfast in achieving further efficiency gains as we consolidate our two-pronged objectives of efficiency and revenue optimisation. We have realised the current improvement largely by entrenching budget discipline, deployment of shared services framework, staff rationalisation and other cost containment measures of the Group. There is scope for further progress as we continue to push ahead with a clear operational efficiency program including implementation of the enterprise resource planning/risk management project,” the bank explained.

Oil/Gas Provisions Drive Impairment

The major jump in then net impairment charge on credit losses from N46.6 billion to N114.7 billion resulted from incremental provisions from oil and gas sector. Other sectors include construction, transport, general commerce and information services sectors. Consequently, Cost of risk increased to 6.9 per cent from 3.0 per cent), while NPL ratio increased to 24.9 per cent, largely driven by the translation effect of the Naira devaluation. According to the bank, it remains focused on remediation and recovery activities towards declassifying non-performing accounts and driving asset quality improvements.

Growth in Deposits, Loans

FBN Holdings total customer deposits rose by 10.9 per cent to N3.3 trillion, up from N2.97 trillion). The bank said it is focusing on ensuring an appropriate deposit mix at the optimum price.

“Low-cost deposits now represent 69.1 per cent of the group’s total deposits, up from 67.3 per cent as at December 2015. Deposit growth was essentially driven by a 41.8 per cent and a 9.4 per cent increase in domiciliary and savings deposits respectively,” it said.

Demonstrating the strength of its franchise and ability to continually attract a well-diversified and sustainable funding base, retail banking deposits within FirstBank (Nigeria) remain strong at 69.5 per cent of total deposits, up from 67.7 per cent as at December 31, 2015 as deposits in other business lines grew stronger.

Similarly, the bank’s total and advances to customers (net) increased by 21.6 per cent to N2.2 trillion, from N1.82 trillion as at December 2015. However, the loan growth was driven largely by the translation effect of the Naira devaluation.

“Due to the impact of the currency devaluation, foreign currency (FCY) loans, as at nine months 2016 now constitute 51.8 per cent of the loan portfolio as against 44.7 per cent as at December 2015. The oil and gas sector accounts for 43.1 per cent of the loan portfolio with oil upstream accounting for 21.9 per cent, while downstream and services are 13.9 per cent and 7.3 per cent respectively,” the bank said.

FBN Holdings said concerted efforts are being made on reducing the FCY net portfolio in dollar terms.

“The matured foreign currency forwards reduced some of the FCY exposure. In dollar terms, the foreign currency net loans portfolio in First Bank (Nigeria) declined by about $319 million. We are also focusing on converting some of the FCY exposures, to curtail the technical growth and its attendant impact of the loan portfolio. A total of $85 million have been converted to Naira. Our priorities remain non-oil trades, short-cycle and self-liquidating transactions with preference in the retail and consumer lending sector in order to optimise portfolio mix, enhance portfolio yield, improve asset quality and enhance capital,” the bank said.

Jump in total assets

FBN Holdings total assets increased by 21.6 per cent to N5.1 trillion, up from N4.2 trillion driven by: increase in loans to banks and customers as well as growth in investment securities. Loans to banks and customers grew by 69.0 per cent and 21.6 per cent to N652.0 billion and N2.2 trillion respectively, while investment securities were up by 25.9 per cent to N1.2 trillion, up from N970.2 billion as at December 31, 2015. Total interest earning assets grew by 28.6 per cent to N4.1 trillion from N3.2 trillion, representing 80.6 per cent of total assets, compared with 76.2 per cent as at December 31, 2015.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Crude Oil

OPEC Expects Increase In Global Oil Demand Raises Members’ Forecast on Crude Supply

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The Organisation of Petroleum Exporting Countries (OPEC) yesterday lifted its forecast on its members’ crude this year by over 200,000 bpd and now expects demand for its own crude to average 27.65mn bpd in 2021.

This is almost 5.2mn bpd higher than last year and around 2.7mn b/d higher than an earlier estimate of the group’s April production.

According to the highlights of the organisation’s latest Monthly Oil Market Report (MOMR), OPEC crude is projected to rise from 26.48 million bpd in the second quarter to 28.7 million bpd in the third and 29.54 million bpd in the fourth quarter of the year.

The report also indicated a fall in Nigeria’s crude production from 1.477 bpd in February to 1.473, a difference of just about 4,000 bpd before rising again in April to 1.548 million bpd, to add 75,000 bpd last month.

OPEC stated that its upward revision of members’ crude was underpinned by a downgrade in the group’s forecast for non-OPEC supply, which it now expects to grow by 700,000 bpd to 63.6mn b/d against last month’s report’s projection of a 930,000 bpd rise to 63.83mn bpd.

The oil cartel projected that US crude output would drop by 280,000 bpd this year, compared with its previous forecast for a 70,000 bpd decline.

On the demand side, OPEC kept its overall forecast unchanged from last month’s MOMR, stressing that it expects global oil demand to grow by 5.95 million bpd to 96.46 million bpd this year, partly reversing last year’s 9.48mn bpd drop.

Spot crude prices fell in April for the first time in six months, with North Sea Dated and WTI easing month-on-month by 1.7 percent and 1 percent, respectively.

On the global economic projections, the cartel said stimulus measures in the US and accelerating recovery in Asian economies might continue supporting the global economic growth forecast for 2021, now revised up by 0.1 percent to reach 5.5 percent year-on-year.

This comes after a 3.5 percent year-on-year contraction estimated for the global economy in 2020.

However, global economic growth for 2021 remains clouded by uncertainties including, but not limited to the spread of COVID-19 variants and the speed of the global vaccine rollout, OPEC stated.

“World oil demand is assumed to have dropped by 9.5 mb/d in 2020, unchanged from last month’s assessment, now estimated to have reached 90.5 mb/d for the year. For 2021, world oil demand is expected to increase by 6.0 mb/d, unchanged from last month’s estimate, to average 96.5 mb/d,” it said.

The report listed the main drivers for supply growth in 2021 to be Canada, Brazil, China, and Norway, while US liquid supply is expected to decline by 0.1 mb/d year-on-year.

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Crude Oil

Oil Rises Over Concerns of Fuel Shortages

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Oil prices rose on Tuesday, as lingering fears of gasoline shortages due to the outage at the largest U.S. fuel pipeline system after a cyber attack brought futures back from an early drop of more than 1%.

Brent crude futures rose 35 cents, or 0.5%, to $68.67 a barrel. U.S. West Texas Intermediate (WTI) crude futures rose 49 cents, or 0.8%, to $65.41.

Benchmark gasoline futures prices rose 1 cent to $2.14 a gallon.

On Monday, Colonial Pipeline, which transports more than 2.5 million barrels per day (bpd) of gasoline, diesel and jet fuel, said it was working to restore much of its operations by the end of the week.

Right now there’s a generalized anxiety premium being built into prices because of Colonial and it’s keeping a floor under the market,” said John Kilduff, partner at Again Capital LLC in New York.

Fuel supply disruption has driven gasoline prices at the pump to multi-year highs and demand has spiked in some areas served by the pipeline as motorists fill their tanks.

Traders booked at least four tankers to store refined oil products off the U.S. Gulf Coast refining hub after a cyber attack that knocked out the pipeline, shipping data showed on Tuesday.

North Carolina, the U.S. Environmental Protection Agency and Department of Transportation issued waivers allowing fuel distributors and truck drivers to take steps to try to prevent gasoline shortages.

OPEC on Tuesday raised its forecast for demand for its crude by 200,000 bpd and stuck to its prediction of a strong recovery in global oil demand this year as growth in China and the United States counters the coronavirus crisis in India.

Meanwhile, the rapid spread of infections in India has increased calls to lock down the world’s second-most populous country and the third-largest oil importer and consumer.

India’s top state oil refiners have already started reducing runs and crude imports as the new coronavirus cuts fuel consumption, company officials told Reuters on Tuesday.

On the bullish side for crude, analysts are expecting data to show U.S. inventories fell by about 2.3 million barrels in the week to May 7 after a drop of 8 million barrels the previous week, a Reuters poll showed.

Gasoline stocks are expected to have fallen by about 400,000 barrels, analysts estimated ahead of reports from the American Petroleum Institute on Tuesday and the U.S. Energy Information Administration on Wednesday.

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Markets

SEC To Ban Unregistered CMOs From Operating By Month End

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The Securities and Exchange Commission (SEC) says it will stop operations of Capital Market Operators (CMOs) that are yet to renew their registration on May 31, 2021.

This was contained in a circular signed by the management of SEC in Abuja on Monday.

On March 23, SEC had informed the general public and CMOs on the reintroduction of the periodic renewal of registration by operators.

The commission noted that the reintroduction of the registration renewal was due to the need to have a reliable data bank of all the CMOs registered and active in the country’s capital market.

“To provide updated information on operators in the Nigerian Capital Market for reference and other official purposes by local and foreign investors, other regulatory agencies and the general public, to increasingly reduce incidences of unethical practices by CMOs such as may affect investors’ confidence and impact negatively on the Nigerian Capital Market and to strengthen supervision and monitoring of CMOs by the Commission,” SEC explained.

According to the circular, the commission said CMOs yet to renew their registration at the expiration of late filing on May 31, would not be eligible to operate in the capital market.

It explained that CMOs were required to have completed the renewal process on or before April 30, however, the commission said late filing for renewal of registration would only be entertained from May 1 to May 31.

SEC also said that asides from barring the CMOs who failed to comply accordingly, their names would be published on its website and national dailies.

It added that names of eligible CMOs would be communicated to the relevant securities exchanges and trade associations.

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