Leading Nigerian banking group FBN Holdings Plc has revealed that its profit after tax for the nine-month period to September scaled up by 31.7% or N7.109 billion, boosted by an expansion in Non-Interest Earnings.
The group’s Profit Before Tax climbed 16.2% from N54.469 billion to N63.313 billion while after-tax profits sprang to N68.156 billion, up from N51.747 billion.
Interest Income slipped to N297.713 billion from N319.561 billion in the same period last year, implying a fall of 6.8%, according to its unaudited financial statements submitted to Nigerian Stock Exchange (NSE) on Friday.
Net Interest Income was down by 5.3% from N203.530 billion to N192.737 billion. It weakened further to N146.06 billion after factoring in Impairment Charges for Losses to the tune of N46.675 billion.
The drop in interest income is a “macro factor and the reality of the economy,” notes Segun Olukoya, Chief Operating Officer, Financial Services & Payments at Nextzon Business Services. “A bank makes money by granting loans and investing in government securities. And at the moment, most banks have reduced lending while interest rates have dropped significantly on liquidity instruments, treasury bills, and bonds, from 14, 15 percent last year to about 2 percent.”
“Interest income is a function of rates in the economy and they have come down, both on government securities and on loans. Because you’re also forced to cut down lending rates to customers,” he added.
With the fall in interest income, a rise in Net gains on Sale Investment Securities from N7.459 billion to N41.182 billion largely helped the bottom line. The bank also recorded a significant rise in fees and commissions from N76.050 billion in the same period 2019 to N87.592 billion this year, driven largely by Other Fees and Commissions.
Also Read: Nigerian Markets Last Week: Oil to Rebound in 2021, Economy in Recession as Inflation Passes 14%
Despite the reduction in charges on electronic transactions by the Central Bank of Nigeria earlier this year, the Group saw a slight increase in Electronic Banking Fees from N34.423 billion in the nine months to September 2019 to N34.595 billion the same period this year, with the bulk of that, N12.878 billion coming in Q3 2020.
That indicates an increase in the volume of online transactions, driven largely by an uptake in digital banking in the wake of the coronavirus pandemic. “It is a digital migration. Most people are now using online and electronic banking channels,” Olukoya said.
Moreover, FBN Holdings has over the years invested heavily in digital infrastructure and alternative channels, the dividends of which the group is now beginning to reap especially during the Covid-induced lockdowns, according to business and investment consultant, Dr. Vincent Nwani.
The outbreak has caused a “significant reduction in social interaction and disruption in economic activities while some public facilities have been shut down in a bid to contain the spread of the virus,” FBN said of the weight of the pandemic outbreak on its operations in a statement.
Also Read: Nigerian Banks Could Fail Survival Tests if Economy Contracts Further
Amid the Covid-19 crisis, Group Managing Director of FBN Holdings, Mr. Urum Kalu Eke had said necessary steps had been put in place to ensure the bank mitigate the impact of the pandemic. According to him, FBN Holdings continued to assess the impact not only on its income in the immediate but also medium-to-long-term impact on its customers and their ability to meet obligations.
“The Group will continuously and closely monitor the status of the fight against the pandemic, evaluate and proactively address its impact on the Group’s financial position and performance,” the company statement added.
FBN Holdings Earnings Per Share is currently N2.05 with a Price-to-Earnings Ratio of 3.54 as of Saturday. Shares in FBN Holdings closed trade on the NSE on Friday at N7.25 per share, down by 40 kobo.
The company’s shares remain undervalued because the valuation does not reflect the growing fundamentals as evidenced by the return on equity which has continued to improve quarter-on-quarter, Eke said.
