The management of FBN Holding Plc made the biggest cut down in credit loss expenses in three years in 2019 and sustained profit recovery for the third year running in the year. Dr. Adesola Adeduntan, who heads the principal subsidiary of the group, steered the course of the enhanced cost-income balance that enabled a marked profit improvement against flat revenue situation the bank faced in the year.
The bank had made one of the largest loan impairment charges in the banking industry in recent years and improving credit quality standard is paying back by way of loan recoveries and declining net loan impairment charges. Net impairment expenses on loans and advances have been dropping since 2017 from 33.5 percent to 42.2 percent in 2018, accelerating to 63 percent year-on-year at the end of September 2019.
The cost saving from declining credit loss expenses has powered profit improvement at 193 in 2017, 42 percent in 2018 and further to 15 percent year-on-year at the end of the third quarter operations ended September 2019.
Management faced two major operational challenges in the course of last year – rising operating cost and inability to improve gross earnings. The bank also contended with sticky interest expenses while interest income declined. That caused a drop of 4.5 percent in net interest income at the end of the third quarter.
These were ably remedied by the cost saving from loan impairment expenses – which provided the strength for sustaining profit recovery for the third year in succession. The cost saving boosted interest income net of loan impairment expenses by about N38 billion at the end of the third quarter.
The company closed third quarter trading with gross earnings of close to N440 billion, which is slightly down from N441.5 billion in the same period in 2018. The problem is that interest income – the main revenue line, declined by 3 percent at the end of the third quarter. Non-interest income improved by 8.7 percent over the same period but could not fully make up for the decline in interest income.
The high point of the company’s operating story at the end of September 2019 is the accelerated drop of close to 63 percent in loan impairment expenses to N28 billion. This indicates the bank sustained improvements in credit quality all the way from the first quarter of the year.
Improving loan recovery and dropping loan loss expenses have supported the profit rebuilding endeavours since 2017. With increasing write backs of previous charges, loan impairment expenses dropped by 33 percent in 2017 and further by 42 percent in 2018.
The bank closed third quarter operations with an after tax profit of close to N52 billion, a year-on-year increase of 15 percent. The improvement raises hopes for sustaining the bank’s recovery journey for the third consecutive year. Its closing profit of about N60 billion in 2018 is still down from the profit high of N84 billion in 2014.
The bank earned N1.38 per share at the end of the third quarter operations, rising from N1.22 per share in the same period in the preceding year. The bank closed the 2018 operations with earnings per share of N1.64 and paid a cash dividend of 26 kobo per share.
In compliance with the increased loan-deposit ratio by the Central Bank of Nigeria last year, FBN Holdings has raised loans and advances to customers and reduced investment assets. Customer credit portfolio expanded from about N1,684 billion at the end of 2018 to about N1,820 billion at the end of the third quarter in September 2019. Investment portfolio dropped by 12 percent to N1.5 trillion at the end of September 2019 from the closing figure in 2018.
The development is in line with the official expectations of the new policy – which is for banks to de-emphasis risk free investment securities and renew productive lending to business and industry, especially small- and medium-scale industries. The compliance by FBN Holdings, as one of the biggest lenders in the banking industry, has affirmed the integrity of the policy.
The closing loan portfolio figure of the company for the third quarter of last year represents an additional credit of N136 billion that its management created in about six months. The CBN intends that by inducing restructuring of bank asset portfolios, the new policy will deal with the problem of declining financial intermediation in the economy and consequently step up economic growth.
FBN Holdings’ customer credit portfolio had peaked at N2,179 billion in 2014 before it began to drop as credit loss expenses grew. Reducing the size of the portfolio was management’s strategy to effect a fundamental redressing of the balance sheet. With the sustaining gain in overall risk asset quality, it can be expected that customer credit volume might head back towards the previous high in 2020.
At the end of the third quarter operations, FBN Holdings had a balance sheet size of N5.73 trillion, N166 billion up on the closing figure in 2018. This is constituted largely by customer loans and advances of N1.82 trillion, investments assets of N1.5 trillion financed by customer deposits of N3.67 trillion and an equity cushion of N605 billion.