Facts Behind FBN Holdings’ Second Quarter Profits Nearly Doubling
FBN Holdings Plc took advantage of two major game-changing factors to accelerate earnings growth in the second quarter, resulting in an exceptional 96% after-tax profit growth for the quarter. The bank made a profit of 22.5 billion naira for the second quarter, which represents 59% of its closing profit of 38 billion naira for the six-month period ended June 2021.
The significant improvement in the bank’s second quarter results reflects positive changes in three major operational functions. These are revenue growth, cost savings through reduced loan impairment charges and interest charges.
Positive revenue growth helped the bank absorb a higher level of costs and cost savings on interest charges and loan impairment charges allowed management to increase its profit margin.
Non-interest income exclusively explains the improvement in gross profit of FBN Holdings in the second quarter. This was led by net gains from financial instruments of over N19 billion for the quarter compared to a net loss of N1 billion in the same quarter in 2020.
Other operating income also fell from less than N1 million to N14.6 billion quarter on quarter. On the downside for the quarter were a drop of more than 72 percent in net gains on the sale of investment securities and a foreign exchange loss of more than 2 billion naira during the same period.
The revenue gains were supported by significant cost savings related to loan impairment charges and the cost of funds. Loan impairment charges reversed from strong growth of around 36% in the first quarter to a decline of 46% in the second.
The bank closed its half-year operations with net loan impairment charges of 24.5 billion naira, a 20 percent year-on-year decline. This development puts the bank back on track to keep credit losses lower for the fifth year in a row.
Despite this slight increase in interest charges in the second quarter, the half-yearly figure of about 57 billion naira still represents a decline of about 25% year-on-year.
A combination of improved revenues and reduced costs resulted in a strong improvement in the bank’s profit margin in the second quarter. This improved the year-over-year net profit margin from 11% in the first quarter to 13% in the first half.
The stock of profit growth that the bank recorded in the second quarter is therefore a function of the recovery in revenues and a gain in profit margin.
With a strong second quarter exit, FBN Holdings regained lost ground in terms of first quarter results with a turnaround in revenues and profits. The development changed its earnings story from a 39% profit decline in the first quarter to a 7% year-over-year profit improvement at the end of half-year operations.
There is also a reversal from an over 14% drop in gross profits in the first quarter to a 13% quarter-on-quarter increase in the second quarter. The recovery in revenues in the second quarter changed the half-year position slightly down 1.4% to close at N292 billion.
Interest income remains a weak point in the bank’s income performance, closing the half-year operations with a drop of more than 22% to N161 billion. The decline in interest income was more than offset by a 47% increase in non-interest income to 131 billion naira year-on-year. This pushed the bank’s revenue performance from a decline in the previous quarter to a slight decline in the middle of the year.
The decline in interest income translated into a 21% drop in net interest income to less than 104 billion naira in the half-year. In addition, despite the decline in loan impairment charges, net interest income after charges fell further by 21% to 79 million naira at the end of June 2021.
Strong growth of 47% in non-interest income to 131 billion naira helped soften the decline in interest income and increased operating profit 9% year-on-year to 45 billion naira .
These developments put the bank back on the path to recovery and growth, which it has maintained over the past five years.
FBN Holdings closed the first half of fiscal 2021 with a balance sheet of over 8 trillion naira, one of the largest bank balance sheets in the Nigerian banking space. It increased the size of the balance sheet by 4% from the closing figure of 7.7 trillion naira in 2020.