FBN Holdings Plc. (“FBNH” or “FBNHoldings” or the “Group”) today announces its audited results for the full year ended 31 December 2015.
Income Statement[1]
- Gross earnings of N2 billion, up 4.9% year-on-year (Dec 2014: N481.8 billion)
- Net interest income of N0 billion, up 8.7% year-on-year (Dec 2014: N243.9 billion)
- Non-interest income of N4 billion, down 12.0% year-on-year (Dec 2014: N112.99 billion)
- Operating income of N4 billion, up 2.3% year-on-year (Dec 2014: N356.2 billion)
- Impairment charge for credit losses of N3 billion (Dec 2014: N25.9 billion)
- Operating expenses[2] of N6 billion, down 5.6% year-on-year (Dec 2014: N236.8 billion)
- Profit before tax of N5 billion, down 77.1% year-on-year (Dec 2014: N94.1 billion)
- Profit after tax of N1 billion, down 82.0% year-on-year (Dec 2014: N84.0 billion)
Statement of Financial Position1
- Total assets of N2 trillion, down 4.1% year-on-year (Dec 2014: N4.3 trillion)
- Customer deposits of N97 trillion, down 2.6% year-on-year (Dec 2014: N3.1 trillion)
- Customer loans and advances (net) of N8 trillion, down 16.6% year-on-year (Dec 2014: N2.2 trillion)
Key Ratios
- Post-tax return on average equity of 2.7% (Dec 2014: 16.9%)
- Post-tax return on average assets of 0.4% (Dec 2014: 2.0%)
- Net interest margin of 8.1% (Dec 2014: 7.6%)
- Cost to income ratio of 61.4% (Dec 2014: 66.5%)
- NPL ratio of 18.1% (Dec 2014: 2.9%)
- 6% liquidity ratio (FirstBank (Nigeria)[3]) (Dec 2014: 44.0%)
- 1% Basel 2 CAR (FirstBank (Nigeria)) (Dec 2014: 15.8%)
- 9% Basel 2 CAR (FBN Merchant Bank) (Dec 2014: 22.5%)
Notable developments
- Key leadership changes in First Bank of Nigeria Limited (“FirstBank” or “the Bank”)
- Mr UK Eke, MFR, previously the Executive Director, South of First Bank of Nigeria Ltd, assumed the position of Group Managing Director of FBNHoldings, effective 1 January 2016
- Mallam Bello Maccido, pioneer Group CEO, FBNHoldings, now Chairman of the newly-licensed FBN Merchant Bank Ltd, effective 1 January 2016
- Alhaji Abdullahi Mahmoud, a Non-Executive Director with FBNHoldings, retired effective 31 December 2015
- Bisi Onasanya, the former GMD/CEO of First Bank of Nigeria Limited retired from the Bank and resigned from the Board of FBN Holdings Plc. with effect from December 31 2015
- Ibukun Awosika, previously a Non-Executive Director of First Bank of Nigeria Limited assumed the position of the Chairman of the Bank effective January 1, 2016, following the retirement of Prince Ajibola Afonja on December 31, 2015.
- Adesola Adeduntan, previously the Executive Director/CFO, is now the Managing Director/CEO of FirstBank & its Subsidiaries effective 1 January 2016
- Gbenga Shobo, previously the Executive Director, Lagos and West is now, the Deputy Managing Director of FirstBank & its Subsidiaries; effective 1 January 2016
- FBN Merchant Bank Limited commenced operations in November 2015
- FBNHoldings completed the divestment of FBN Microfinance Bank; having sold its entire Shares to Letshego Holdings Limited
Commenting on the results UK Eke, MFR, the Group Managing Director of FBNHoldings said:
“This has been a very difficult time in the history of our institution. Despite the tough macroeconomic and regulatory backdrop during the year, our underlying business remains strong as reflected in the gross earnings growth of 4.9% to N505.2bn – clearly a leading position in the industry. Furthermore, the Holding company platform has provided support in mitigating the impact of credit losses and the vulnerabilities experienced by our Commercial Banking business.
In coming periods, our primary focus is to drive efficiency and operational excellence across all operating companies. Key initiatives in achieving this, as we eliminate the value eroding factors and seek to reposition the Group towards a new growth path, include: enhanced focus on moderating risk appetite, risk management practices and culture; disciplined cost containment; asset optimisation; and, synergy realisation. We will be sustaining the drive to improve cross sell initiatives, improve performance and returns from our subsidiaries to provide diversified and sustainable revenue for the Group. Whilst acknowledging the challenges facing the Group, we are committed to achieving our set tasks. Amongst those, one priority stands out above all else – the need to restore shareholder value whilst building long-term sustainability into our businesses”.
Group Financial Review
Income Statement1
Gross earnings increased by 4.9% y-o-y to N505.2 billion (Dec 2014: N481.8 billion), driven by a 9.3% y-o-y growth in interest income to N396.2 billion; supported by growth in increased interest income on loans to customers by 8.2% y-o-y as well as higher volumes in treasury activities. On the back of the changes in the regulatory and macroeconomic environment, non-interest income decreased by 12.0% to N99.4 billion. Interest income grew 9.3% y-o-y to N396.2 billion, due to an 8.2% y-o-y growth in interest on loans to customers; a 9.6% y-o-y growth in interest from investment securities and 22.1% growth in interest on loans to banks. This is despite the impact of the “bonds for loans” initiative during the year and the overall decline in loans at year end. In ensuring optimal risk-adjusted pricing, assets were re-priced resulting in higher yields on customer loans from 12.7% in the previous year to 13.6%.
Net interest income increased by 8.7% y-o-y and 19.7% q-o-q[1] to N265.0 billion (Dec 2014: N243.9 billion) despite a 10.5% y-o-y increase in interest expense to N131.2 billion. Net interest income grew by N72.1 billion in the Q4’15, mainly due to the reduction in interest expense on customers’ deposit following reduction in term and borrowings by 54.6% q-o-q and 16.2% q-o-q respectively. This is due to the low-interest environment in the last quarter; to our significant repricing maturing expensive deposits, and to reduced funding for letters of credits for international trade. Interest expenses grew by 10.5% y-o-y (-31.0% q-o-q) to N131.2 billion, reflecting a higher interest rate environment that characterised most part of the year but the last quarter. Until the September 21-22 MPC meeting, the Cash Reserve Ratio (CRR) was higher and applied separately to public (75%) and private sector (25%) deposits which resulted in heightened competition for deposits and higher funding costs. Subsequently, the CRR was harmonised to 31% and then revised initially to 25%, and then to 22.5% in March 2015. In addition, in November 2015, the MPC reviewed the monetary policy rate from 13% to 11% resulting in a reduction in the minimum savings deposit rate from 3.9% to 3.3%. Interest expense on customers’ deposit, constituting 80.4% (Dec 2014: 82.6%) of total interest and similar expense, grew 7.5% y-o-y but dropped 54.6% q-o-q to N105.4 billion at year end. Interest on borrowings, which represents 11.6% (Dec 2014: 15.2%) of total interest expense, reduced by 15.1% y-o-y and 16.2% q-o-q to close at N15.3 billion (Dec 2014: N18.0 billion).
Cost of funds closed at 3.7% (Dec 2014: 3.5%) at year end from a peak of 4.0%, in H1 2015 and 9M 2015, as we re-priced maturing deposits lower as well as reflecting the trend in the interest rate environment. Yields on bank loans and customers’ loans increased from 4.3% and 12.7% last year, to 5.5% and 13.6% respectively, while yields on investment securities remained stable at 11.8%. Overall, the blended yield on interest earning assets improved to 12.1% (Dec 2014: 11.3%). Given the higher proportionate increase in average yields on interest earning assets over average cost of funds, the net interest margins improved to 8.1% (Dec 2014: 7.6%).
Non-interest income (NII) declined by 12.0% y-o-y to N99.4 billion (Dec 2014: N112.99 billion) due to the decrease in earnings from foreign exchange revaluation gain and foreign exchange trading income in view of the relatively steady exchange rate environment. This was mitigated by the gains from the disposal of FBN Microfinance Ltd. (N1.6 billion) and the disposal of an equity investment (N5.0 billion) at FirstBank (Nigeria). Normalising for the gains on foreign exchange revaluation from the current and prior year, FBN Microfinance and the disposal of the equity investment, non-interest income would have been flat (-0.3 y-o-y) at N82.2 billion.
Fees and commission (F&C) income, representing 64.4% (Dec 2014: 59.3%) of total non-interest income, reduced by 4.4% to close at N64.1 billion (Dec 2014: N66.98 billion). This is as a result of the decline in commission on turnover (COT), from N15.3 billion to N12.7 billion, in spite of the 50% regulatory reduction in the rate, COT declined by 17.2% y-o-y.
Non-interest income to net revenue closed at 27.3% (Dec 2014: 31.7%), demonstrating the resilience of the Group in generating non-funded income. In line with our strategy of growing e-business transactions, electronic banking fees grew by 34.1% y-o-y to N15.4 billion (Dec 2014: N11.5 billion). Electronic banking makes up 24% of the fees and commission income (Dec 2014: 17.1%), and it is now its highest contributor. In addition, net revenue from insurance premiums also contributed strongly to non-interest income from sustained growth in our insurance business. Net premium revenue grew by +171.5% y-o-y to N7.3 billion (Dec 2014: N2.7 billion).
Operating expenses decreased by 5.6% y-o-y to N223.6 billion (Dec 2014: N236.8 billion), in a 9.6% inflation environment. This was driven primarily by a decrease in regulatory cost (-0.3%) to N30.1 billion; maintenance cost (-1.4%) to N19.3 billion; advert and corporate promotions (-33.7%) to N8.5 billion; and, donations and subscriptions (-23.7%) to N1.4 billion. Staff cost remained relatively flat (+0.7%) at N80.4 billion. The above achievements highlight our resolve in ensuring that sustainable operational efficiency permeates every aspect of our business. The bulk of these cost savings were achieved in FirstBank (Nigeria).
Cost-to-income ratio improved to 61.4% (Dec 2014: 66.5%) on the back of the 5.6% y-o-y decline in operating expenses and of the 2.3% increase in operating income. We have already implemented additional cost management and optimisation measures to continue to reduce operational expenses year-on-year, which, coupled with the focus to operate our business in a more efficient, should lead to improvements in our efficiency ratios.
Net impairment charge on credit losses amounted to N119.3 billion (Dec 2014: N25.9 billion). This was attributable to the recognition of impairment on some specific accounts as well as collective exposures following reassessment of the loan book in the commercial banking business due to the sharp decline in global oil prices, the volatile macro environment, and fiscal and monetary headwinds which have resulted in marked reduction in domestic output. Active remedial actions on the specific impaired accounts have commenced. The main sectors impacted are oil and gas, real estate and general commerce; contributing 59.7%, 12.3% and 10.2% to the impairment charge respectively.
Cost of risk closed at 5.7% (Dec 2014: 1.3%), exacerbated by the 11.6% decline y-o-y in gross loans while the NPL ratio increased to 18.1% as at 31 December 2015 (Dec 2014: 2.9%). 2015 was a very challenging year in our risk management performance, specifically within our principal subsidiary, FirstBank (Nigeria).
A critical review of the culture and practice of our risk management function has been undertaken. We are implementing structural initiatives as we retool and reshape the ethos of the underwriting practice towards building a resilient loan portfolio under a new leadership.
Profit before tax closed at N21.5 billion (Dec 2014: N94.1 billion) down 77.1% y-o-y. Income tax expense for the year was N6.4 billion (Dec 2014: N10.0 billion). Effective tax rate for the year was 29.6% driven by reduced earnings and increased non-deductible expenses. Post-tax return on average equity for the year was 2.7% (Dec 2014: 16.7%) and post-tax return on average total assets 0.4% (Dec 2014: 2.0%), while Earnings per share closed at N0.43 (Dec 2014: N2.35).
Statement of Financial Position1
Total assets decreased by 4.1% y-o-y to N4.2 trillion due to a decline in loans to customers, as well as the impact of the “bonds for loans” initiative of the CBN during the year. These led to a reduction in total interest earning assets by 6.0% to N3.2 trillion from N3.4 trillion. While customer loans reduced by 16.6%, balances on interest earning investment securities increased by 32.0%.
Total customer deposits declined by 2.6% y-o-y to N2.97 trillion (Dec 2014: N3.1 trillion). To ensure we keep our cost of funds at a competitive level, we re-priced some maturing expensive deposits whilst terming out other expensive deposits. At Group level, savings deposits now constitute 27.9% (Dec 2014: 23.9%) of total deposits, closing at N829.8 billion (+13.9% y-o-y).
Commenting on the results, Dr. Adesola Adeduntan, the MD/CEO of FirstBank & its Subsidiaries said:
”FirstBank and its Subsidiaries recorded a 2.3% y-o-y increase in gross earnings which however translated into an 89.2% decline in profit before tax. The soft performance was driven by the high impairment charges resulting from the adverse macro-economic environment.
Whilst we acknowledge the weaknesses that became apparent in our risk management processes and practices, our focus going forward is to strengthen our risk management processes and practices; to enhance the overall control environment within the bank to aggressively drive down the cost of operations while leveraging existing and future investments in technology to drive customers satisfaction by improving the ease of doing business with the Bank. We will also focus our attention on driving better performances from all our subsidiaries in the months ahead. We believe that this will take us in the right direction and help us to achieve sustainable success going forward”
FirstBank (Nigeria)[1] (“FirstBank”)
Gross earnings rose by 3.6% y-o-y to N421.1 billion (Dec 2014: N406.5 billion); net-interest income increased by 5.8% to N227.9 billion (Dec 2014: N215.4 billion), while non-interest income declined by 16.0% to N73.8 billion. Profit before tax closed at N2.8 billion (Dec 2014: N81.4 billion). Total assets reduced by 4.5% y-o-y to N3.3 trillion (Dec 2014: N3.5 trillion), with customer loans and advances (net) closing at N1.5 trillion (-18.8% y-o-y). Customer deposits declined by 5.9% y-o-y to close at N2.4 trillion (Dec 2014: N2.6 trillion). Term deposits, at FirstBank (Nigeria) have reduced from 24.1% in the previous year to 21.2% of total deposits at the end of 2015. The Bank continues to attract sticky and good quality deposits, highlighted by the increasing duration of deposits as well as the contribution of the low-cost deposits to 78.8% of total deposits (Dec 2014: 75.9%). Savings deposits continue to grow steadily.
Operating expenses dropped by 11.1% y-o-y, this resulted in the marked decrease in the Bank’s cost-to-income ratio to 59.3% from 66.3% in the prior year. Notwithstanding the progress made, we remain focused on ensuring improving efficiency metrics towards increasing profitability.
Given recent key management changes, we have restructured the composition of FirstBank (Nigeria) Management Committee (MANCO) and appointed new business units heads. To strengthen risk management, enhance and optimise productivity, appropriately deploy resources, deliver consistent product offerings and speed to market, as well as drive profitability, we have streamlined the FirstBank (Nigeria) operating model. The new business segments are Retail and Products, Corporate Banking, Commercial Banking, Public Sector, International Banking and Treasury and Financial Institutions.
[1] This relates to FirstBank Nigeria Only
See the full financial statement press release FBN Holdings Plc 2015 Audited Full Year Results Press Release.