Asset disposal gain bloats FBNH’S quarterly performance

THERE are strong indications that a N10.5 billion asset disposal gain contributed immensely to the 56.3 per cent first half (H1) 2020 earnings surge of FBN Holdings Plc when compared year on year (YoY).

According to analysis by an investment research firm CardinalStone Research, this performance was supported by a 46.8per cent jump in non-interest income and a N13.8 billion gain in discontinued operations that was mostly influenced by the sale of the firm’s 65.0per cent stake in FBN Insurance Ltd.

In the second quarter (Q2) 2020, however, earnings contracted by 7.5per cent when compared quarter by quarter (QoQ) to N23.8 billion. Further assessment reveals a much steeper decline in operating performance after adjusting for the N10.5 billion asset disposal gain during the quarter.

To this point, the research firm said earnings from continuing operations plunged 46.0per cent QoQ, weighed by a 2.2x jump in impairment charges on financial assets and a 39.0per cent decline in non-interest revenue.

“These weaknesses are possibly indicative of the weak operating conditions induced by the COVID-19 pandemic,” CardinalStone Research stated in a research note to clients.

credit-related impairments rose 49.8per cent QoQ during the quarter to N15.1 billion, reflecting a 100 bps jump in cost of risk to 2.9per cent in Q2 2020. It said nonperforming loans (NPL) ratio, however, moderated to 8.8per cent from 9.2per cent in Q1 2020, possibly due to further write-offs and loan restructurings

Non-interest revenue (NIR) fell 39.0per cent weighed by an 84.9per cent decline in total non-fee related NIR.

Elsewhere, net interest income rose 17.9per cent QoQ aided by lower interest expense (-29.5 per cent).

“We attribute the moderation in interest expense to the 100bps cut in MPR on the bank’s huge savings deposit base and the impact of moderating yields

“Also, operating expenses moderated by 5.6per cent in the quarter, although cost to income ratio inched 110bps higher due to the weaker operating income (-7.8 per cent QoQ),” the firm stated.

Gross loans to customers contracted by 2.6per cent while customer deposits improved by 1.9per cent relative to Q1’20.

Following the divestment from the insurance business, the HoldCo injected tier 1 capital into the commercial bank, leading to a 120-bps increase in Capital Adequacy Ratio (CAR) to 16.5 per cent.

 

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