FBN Holdings: Resilient on bumpy terrain

BY CHIOMA OBINAGWAM

THE recent release of FBN Holdings’ unaudited result for the half year(H1) ended June 30, 2016, indicates a show of resilience in its key financial metrics despite bumpy terrain and harsh operating environment.

Specifically, the group’s Return On Average Equity ROAE), a financial ratio that measures how profitable a company is for the owner of the investment, and how profitably a company employs its equity, closed at 12 per cent for the review period.

This implies that for every naira invested by the owners, common shareholders, the company makes a 12 kobo return per net-worth.

Although the ROAE dropped marginally from the 14.18 per cent recorded in the corresponding period of 2015, it is still on the track of profitability for its owners and investors.

In the same vein, the group displayed dexterity in transforming its asset into profitability, posting a Return On Average Asset (ROAA) of 1.6 per cent within the review period. Thus, indicating a profit of 1.6 kobo for every naira invested on asset.

Apart from exuding resilience in these key profitability ratios, the company recorded an improvement in its loan book as Customer loans and advances climbed to N2.1 trillion from the N1.8 trillion that was posted in December 2015, representing a 16.2 per cent increase.

Again, Customer Deposits advanced by 4.2 per cent to N3.1 trillion from the N2.97 trillion that was achieved in the prior year.

Operating Income increased to N220.1 billion, up 13.1 per cent from the N194.6 billion, recorded in June 2015; riding on the back of a declining Operating Expense, which shed 13 per cent from the N119.9 billion recorded in the same period of 2015 to settle at N104.3 billion.

Nevertheless, the group posted a Non-performing loan (NPL) ratio of 22.8 per cent higher than the 4.1 per cent recorded in June of the corresponding year.

Notwithstanding that the NPL ratio threshold for the industry is pegged at 5 per cent, the increase in the NPL ratio the company disclosed, was occasioned by the naira devaluation in addition to macro-economic headwinds.

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Commenting on the results, UK Eke, the Group Managing Director(GMD) said: “FBN Holdings’ performance has remained resilient in the challenging macro-economic and business environment, further exacerbated by the devaluation of the naira and by the persistent rise in inflation.”

Also, analysts at Cordros Capital limited, research division, affirm the impact of the naira devaluation and other macro-economic factors on the result.

They said: “The 40 per cent naira devaluation recorded in H1’16 caused net loans and customer deposits to expand by 16.2 per cent Year To Date (YTD) and 4.2 per cent YTD respectively.”

“Non-interest income also received a boost from the devaluation, expanding 52.0 per cent year on year(y/y) and 229.7 per cent quarter on quarter(q/q), after the Group recorded N54 billion in net foreign exchange income, primarily from Forex (FX) revaluation gains in second quarter 2016(Q2’16),” they continued.

These factors, however, brought the profitability of the group under pressure, as Profit After Tax (PAT) stooped to N35.9 billion, down 10.5 per cent from its June 2015 N40.1 billion.

However, the group consolidated its strength in the Capital Adequacy Ratio (CAR)-a measure of a banks solvency/ financial competence, of one of its major subsidiaries: First Bank of Nigeria, where its CAR grew to 16.7 per cent from the 15.8 per cent recorded in the corresponding period of 2015.

Consequently, the GMD said: “The Group returned gross earnings of N267.9 billion and Profit Before Tax (PBT) of N45.9 billion; a reflection of the strength of our underlying business.