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FBN Holdings Maintains Stability

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FBN Holdings
  • 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.

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Communities in Delta State Shut OML30 Operates by Heritage Energy Operational Services Ltd

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The OML30 operated by Heritage Energy Operational Services Limited in Delta State has been shut down by the host communities for failing to meet its obligations to the 112 host communities.

The host communities, led by its Management Committee/President Generals, had accused the company of gross indifference and failure in its obligations to the host communities despite several meetings and calls to ensure a peaceful resolution.

The station with a production capacity of 80,000 barrels per day and eight flow stations operates within the Ughelli area of Delta State.

The host communities specifically accused HEOSL of failure to pay the GMOU fund for the last two years despite mediation by the Delta State Government on May 18, 2020.

Also, the host communities accused HEOSL of ‘total stoppage of scholarship award and payment to host communities since 2016’.

The Chairman, Dr Harrison Oboghor and Secretary, Mr Ibuje Joseph that led the OML30 host communities explained to journalists on Monday that the host communities had resolved not to backpedal until all their demands were met.

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Crude Oil Recovers from 4 Percent Decline as Joe Biden Wins

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Oil Prices Recover from 4 Percent Decline as Joe Biden Wins

Crude oil prices rose with other financial markets on Monday following a 4 percent decline on Friday.

This was after Joe Biden, the former Vice-President and now the President-elect won the race to the White House.

Global benchmark oil, Brent crude oil, gained $1.06 or 2.7 percent to $40.51 per barrel on Monday while the U.S West Texas Intermediate crude oil gained $1.07 or 2.9 percent to $38.21 per barrel.

On Friday, Brent crude oil declined by 4 percent as global uncertainty surged amid unclear US election and a series of negative comments from President Trump. However, on Saturday when it became clear that Joe Biden has won, global financial markets rebounded in anticipation of additional stimulus given Biden’s position on economic growth and recovery.

Trading this morning has a risk-on flavor, reflecting increasing confidence that Joe Biden will occupy the White House, but the Republican Party will retain control of the Senate,” Michael McCarthy, chief market strategist at CMC Markets in Sydney.

“The outcome is ideal from a market point of view. Neither party controls the Congress, so both trade wars and higher taxes are largely off the agenda.”

The president-elect and his team are now working on mitigating the risk of COVID-19, grow the world’s largest economy by protecting small businesses and the middle class that is the backbone of the American economy.

There will be some repercussions further down the road,” said OCBC’s economist Howie Lee, raising the possibility of lockdowns in the United States under Biden.

“Either you’re crimping energy demand or consumption behavior.”

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Nigeria, Other OPEC Members Oil Revenue to Hit 18 Year Low in 2020

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Revenue of OPEC Members to Drop to 18 Year Low in 2020

The United States Energy Information Administration (EIA) has predicted that the oil revenue of members of the Organisation of the Petroleum Exporting Countries (OPEC) will decline to 18-year low in 2020.

EIA said their combined oil export revenue will plunge to its lowest level since 2002. It proceeded to put a value to the projection by saying members of the oil cartel would earn around $323 billion in net oil export in 2020.

If realised, this forecast revenue would be the lowest in 18 years. Lower crude oil prices and lower export volumes drive this expected decrease in export revenues,” it said.

The oil expert based its projection on weak global oil demand and low oil prices because of COVID-19.

It said this coupled with production cuts by OPEC members in recent months will impact net revenue of the cartel in 2020.

It said, “OPEC earned an estimated $595bn in net oil export revenues in 2019, less than half of the estimated record high of $1.2tn, which was earned in 2012.

“Continued declines in revenue in 2020 could be detrimental to member countries’ fiscal budgets, which rely heavily on revenues from oil sales to import goods, fund social programmes, and support public services.”

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