FBNH: We Want To Regain Our Leadership in Banking Sector – GMD
- The First Bank of Nigeria Holdings Plc.’s race to regaining the banking industry leadership has begun as lender’s record significant improvement in digital footprint. In the first half of 2020, the group successful balance sheet repair program has resulted to improvement in asset quality with single-digit non-performing loan ratio.
In its second-quarter 2020 earnings conference call with analysts representing various investors’ interests, the management said the lender benefited from increased volatility in the marketplace as its e-business market share rose significantly during the period.
The group aggressive deposit mobilisation and e-business business development aided uptick reported around earnings year to date. FBN’s growing agent banking network continued to support electronic banking income in the first half of the year.
The number of agents grew by 114.8% to 59,024 while the revenue from these agents increased by 109.0% in the period. The contribution of agent banking to e-business revenue improved to 29.3% from 13.9% in the comparable period in 2019.
Also, the management said the recent capital injection was partly made possible by sales of FBN insurance limited. Thus, it raised its capital adequacy ratio to 16.5% from 15.5% in 2019, moved slightly above the regulator’s benchmark.
Speaking with analysts, Urum Kalu Eke, the Group Managing Director said across the globe, 2020 has been very challenging.
“However, I am delighted to report that despite the very tough operating environment our gross earnings jerked up 5.8% year-on-year. Profit after tax for the period also increased 56.3% on the back of very strong growth in non-interest income”.
The GMD told analysts representing various investors interests that the progress made in the lender’s non-interest income was driven largely by treasury activities”.
“We benefited from increased volatility in the marketplace, of course, as well as increasing market share in our e-banking segment. The non-interest income line was up 47%. Interest income, obviously, was impacted by the low yield environment”, Eke added.
He said, relative to the first half of 2019, net interest margin was down, but the lender reported 110 basis points (bps) growth in net interest margin from 6.3% in the first quarter (Q1) of 2020 to 7.4% in the second quarter (Q2) of the same year.
He added that the feat was supported by a drop in the cost of funds which was as low as 2.3% for Q2 of 2020.
Explaining the depth of the performance of the e-business, Eke said: “I think it’s appropriate to emphasize the progress we made on our agent banking, which is a major contributor to the noninterest income.
“Our agent banking network increased by over 100% year-on-year, we ended June with 59,000 agents. In terms of the value of transactions processed, we are glad to report that we were able to achieve about 5.71 trillion in value terms compared to N1.61 trillion for the prior period 2019”.
Now, this is phenomenal, the GMD exclaimed, said: “If you imagine that we were able to grow that count and value by over 250% just in 1 year”. He said FBNH is monetizing the agents banking proposition and its revenue contribution to the total agent income continues to grow.
Eke said the growth in the volume and value across the e-channels continues to offset the reduction in regulated fees, which has allowed the bank to keep revenues on that line flat year on year.
“You’ll recall that in January this year, Central Bank came up with a regulation which slashed fees on e-banking products by as high as 50%, so what would have expected a drop significantly on that revenue line.
“But based on the scale we have built, we were able to maintain very high revenue in the line and we are glad with the progress we’re making on that platform”, the GMD said.
FBNH GMD said in the second quarter under review, the group successfully completed the sale of our insurance subsidiary, the FBN Insurance Limited to Sanlam of South Africa.
He added that the deal created the platform and the lever for FBNH to inject additional Tier-1 capital into our flagship, FirstBank, effectively taking the CAR to over 16.5%.
“This is before capitalizing the profits year-to-date. So this divestment is clearly in line with our mandate of delivering greater value to shareholders and strengthening the core business of the group.
“The idea remains that we want to regain our leadership of the banking sector. That remains our brand ambition”.
“We grew our top line and bottom line, while strengthening our balance sheet despite the adjustment of the exchange rate, the rise in inflation and also the impact of the current pandemic, we’re able to maintain the cost profile flat year-on-year”, Eke said.
The management told analysts that this is a clear indication of the commitments that made that the group is on track to keep costs going down with a view to achieving over the next 3 years, cost-to-income ratio around about 55%.
Lender’s NPL settled at 8.8% as of June from 9.9% at the beginning of the year as the management strive to achieve sub-5.
And to give you insight into the loan quality, the vintage NPL loans made out in the last 3 years, they’ve remained below 1%. So we’re on track.
“We have delivered a very robust financial performance which speaks to the resilience of the group and how successfully and deliberately we have executed our strategy, and this is across all subsidiaries.
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“We have delivered earnings growth, strengthened balance sheet, and maintained a very strong liquidity profile on both the local currency and foreign currency.
“Our dominance in the e-banking space reinforced it during the first half of 2020”, FBNH Boss explained.
For the outlook for the second half, FBNH said the group will continue to innovate and maintain our distinctive advantage in the digital and agent banking space to build scale.
“That’s what is important for us, scale-up aggressively and significantly.
“We will continue to drive our transaction-led banking model, very important to us, and we believe that this will all translate to better financial outcomes at the end of this year”, Eke told analysts.
Also speaking to the filled bouquet of operating expenses, Patrick Iyamabo, FBN Chief Finance Officer, said there is quite significant pressure on it – between currency devaluation and rising inflation rate.
Iyamabo also said regulatory cost is adding to the pressure with AMCON, NDIC. “We have to pay more to AMCON, NDIC and lender have to accrue for these apart from maintenance expenses made on IT”, he added.
“Regulatory cost is quite high for us, between AMCON and NDIC, we’re spending about NGN 40 billion and we’re incurring about N40 billion in OPEX”, the CFO said.
However, the management noted that the liquidity ratio is technically or theoretically under pressure. Explaining this to analysts, Iyamabo said: “I use the word technical or theoretical because a lot of it just reflects the CRR debit by the CBN.
“The CRR quarantined or our liquidity quarantined to the CBN has gone from about NGN 800 billion to about NGN 1.6 trillion. We don’t compute that as part of liquidity ratio. If we were to, then our liquidity ratio is in the region of maybe about 40%.
“So, really it’s part of the liquidity ratio, but technically, theoretically, it’s not. So our liquidity ratio is still strong but under a lot of pressure, primarily, because of the CBN’s quarantine”. The lender said its liquidity ratio settled at about 30.6% after it backed out all the CRR considerations.
“We believe we will do better than we did in 2019, and the numbers are there”, the management assured analysts.
