Given the current credit environment in the Nigerian financial services sector FBN Holdings Plc is focusing on loan and remedial management. The group is also determined to further diversify its loan book, reduce sector concentrations and rebalances the portfolio to higher yielding, short tenured assets to optimise yields in the near term.
Consequently, the group is not engaging in further transactions in the upstream oil and gas segment and it is reducing exposures to the downstream sector in a controlled manner, including reduction in credit lines for some operators; outright cancellation of lines for some marginal players; and has tightened the risk acceptance criteria and put a freeze on term exposures.
Meanwhile, the gross earnings of FBNH increased by 16.9 percent year-on-year and -17.8 percent quarter-on-quarter to N390.0 billion in September 2015 , supported by a 17.5 percent y-o-y growth (-14.4% q-o-q) in interest income to N300.4 billion.
In the same way, Non-interest income increased by 13.4 percent y-o-y (-33.1% q-o-q) to N82.5 billion. Interest income on loans, which represents 67.4 percent (Sept 2014: 73.7%) of total interest income, grew 7.5 percent y-o-y (-14.9% q-o-q) to N202.5 billion, with investment securities now representing 28.3 percent (Sept 2014: 22.6%:) of total interest income growing 47.1 percent y-o-y (1.1% q-o-q) to N85.0 billion. Non-interest income is buoyed by revenue from investments and treasury activities.
The group’s net interest income increased by 9.3 percent y-o-y and 17.6 percent q-o-q to N192.9 billion, compared to N176.5 billion in September 2014, despite a 35.6 percent y-o-y increase in interest expense. Net interest income amounted to N60.2 billion in Q3 2015 (Q2 2015: N73.1 billion) following a 14.4 percent decrease in interest income and an 8 percent decrease in interest expense. Interest on loans to customers was 67.4 percent of total interest income which grew by 7.5 percent y-o-y (-14.9% q-o-q) closing at N202.5 billion.
Interest on loans to customer was also impacted by the early termination of interest on loans to State Governments under the bonds for loans initiative. About N110 billion loans were converted to Federal Government Bonds19 with an average of 14 percent in yields.
Consistent with its plan of improving earnings through enhanced treasury activities, the contribution of interest from investment securities improved to 28.3 percent of total interest income compared to 22.6 percent in nine months September 2014, up 47.1 percent y-o-y (+1.1% q-o-q) to N85.0 billion. Interest on loans and advances to banks also grew to N12.9 billion (Sept 2014: N9.6 billion), a +34.8 percent y-o-y (-80.3% q-o-q).
Interest expense grew by 35.6 percent y-o-y (-8.0% q-o-q) to N107.5 billion in September 2015. The increase in interest expense y-o-y has been primarily driven by the high interest rate environment following increased cash reserve requirements (CRR) and heightened competition for deposits among financial institutions. At the September MPC meeting, the harmonised CRR was reduced to 25 percent from 31 percent. Interest expense on customers’ deposit, constituting 85.6 percent of total interest and similar expense, grew by 31.5% y-o-y (-8.1% q-o-q) to N92.0 billion. In addition, interest on borrowings closed at N12.8 billion (57.5% y-o-y, -41.8% q-o-q) on reduced utilisation of borrowings from corresponding banks to finance letters of credit for international trade.
Commenting on the results, Bello Maccido, the Group CEO said, “this has been a challenging year so far, with economy slowing down and credit conditions remaining adverse thereby impacting the Group’s operating performance. We are managing the cost of risk by strengthening our risk management processes while leveraging our assets, adjusting pricing to higher default risks associated with a contracting economy; and nowhere has this process been more pronounced than in the oil and gas sector.
“To ensure we build a more efficient group structure that will benefit the Group’s need to deploy systems which increase profitability and efficiency while expanding revenue generation, we are confident we have made the right choices in selecting the managing director and the deputy managing director for our principal subsidiary, FirstBank, as we were particularly mindful to identify outstanding and top notch professionals with complementary and mutually reinforcing skill sets. The major leadership changes across the Group also points to the renewed focus in driving stronger performance towards delivering sustainable returns and restoring shareholder value”.
HOPE MOSES-ASHIKE
