FBN Holdings Plc (Nigeria) – FY2020 financial results conference call transcript

By Published On: June 15th, 2022Categories: Corporate announcement, Transcripts

Tolu Oluwole
Head of Investor Relations

Good day, ladies and gentlemen. Thank you for your patience and welcome to the FBNHoldings PLC full year 2020 financial results conference call. Thank you all for taking the time to join the call today and for your continuous interest in FBNHoldings. My name is Tolu Oluwole. Following an overview by the Group Managing Director of FBNHoldings, an interactive Q&A session will be available.

However, before I hand over the call to the Group Managing Director, I would like to go through a few conference protocols.

Participants are encouraged to use the raise hand function to ask questions, and microphones will be unmuted once called upon to speak. For efficiency we will be batching questions in two or three, before responding, and after asking questions, microphones must be on muted, except when speaking. This is very important to avoid interference.

Questions could also be submitted in the Q&A function as well. That said, I would like to hand over the call to the Group Managing Director of FBNHoldings PLC, Mr UK Eke. Please go ahead, Sir.

UK Eke
Group Managing Director

Thank you, very much, Tolu. Good afternoon and good morning, ladies and gentlemen. I would like to welcome you to the FBNHoldings investor and analyst result presentation for the full year ended 31 December 2020. My name is UK Eke, and I am the Group Managing Director of FBNHoldings PLC.

I am also delighted to introduce my colleagues that are on this call with me. As always, Dr Sola Adeduntan, who is the CEO of First Bank. Kayode Akinkugbe, the CEO of FBNQuest Merchant Bank. Oyewale Ariyibi, the CFO of FBNHoldings. Patrick Iyamabo CFO First Bank. Segun Alebiosu, the CRO First Bank and Ini Ebong, Group Executive Treasury, Financial Institutions and International Banking. Of course, Tolu has already introduced himself, the Head IR.

So much has been said of the year 2020. Without doubt, a very challenging year for individuals, families, businesses, and the world at large, bringing with it, disruptions to the global economy and recession across the globe.

Nigeria, our home base, had its fair share of the challenges, indeed, we went into recession in the third quarter of 2020, but quickly recorded a 0.11% growth in the fourth quarter of 2020. That is the context under which we operated.

We believe overall, we recorded a very strong performance, which is a clear testament to the resilience of our institution and the benefits we made over the years in strengthening our risk management architecture.

Our strong and resilient performance, which I have just mentioned, was driven largely by revenue diversification, with increase in non-interest income. Also, we saw clearly, our unassailable leadership in digital and Agent banking. Then we also saw a well-diversified and solid funding base, which continues to enhance our liquidity position,both FCY and LCY.

We further strengthened our risk management practice and controlled environment, resulting in improved asset quality, as I would show in the slides that will follow after this introduction.

Starting from slide 6, profit after tax for the year grew by 22%, just rounding up, to ₦89.7 billion. The non-interest income recorded a growth of 26.7% year-on-year, closing at ₦174.7 billion. These results, we are proud to say, were despite the very challenging rate environment, evidenced by decline in fixed income rates and higher cash reserving requirements, as we all saw in 2020. Also, this led to a 10.9% year-on-year decline in the interest income, closing at ₦384.8 billion.

However, we are glad to say that we mitigated the impact of the decline in net interest income by containing our interest expense through a deliberate and carefully executed program around driving costs, low-cost deposits, and reducing the costs of deposits. You know, of course, that we are a low-cost producer, and so this has reflected in the cost of funds which you will see in the slides that follow.

I also want to recall, I am sure you remember, that five years ago we outlined our strategy, our intention to diversify our income stream by boosting non-interest income through transaction-led banking model. We believe this decision has minimised the burden on our customers. Indeed, it came in very handy during the lockdown period, by providing seamless access to banking services, as well as supporting government efforts, and indeed, the efforts of donor agencies in reaching Nigerians with COVID-19 support programs or palliatives.

I would like to emphasise the very significant progress we made in our Agent banking proposition. The electronic banking revenue increased by 1.3%, despite the 50% regulatory reduction in fees. The growth was supported by expansive volume developments, and so we recorded a 28.1% volume growth in our USSD proposition, and we saw 1.0 trillion in terms of counts, and then a 43.4% growth in mobile banking volume, to 248.2 million transaction volume, as at 31 December 2020.

Similarly, we are glad to report that our Agent banking network increased by over 100% from the prior period of 2019, 44,000 to 100,000 agents across 772 local government areas of Nigeria.

We’re also proud to report that we crossed the ₦9 trillion threshold for value of transactions processed from inception to date, processing ₦9.78 trillion, compared to ₦3.1 trillion in prior year.

More importantly, we are monetising our Agent banking, and its revenue contribution to e-business. As you will have noticed over the years, we have seen year-on-year growth in the contribution of our Agent banking business and the e-business income continues to grow, relative to the total non-interest income.

To further deepen our Agents’ banking offerings, we enhanced our services and are expanding the reach beyond Nigeria. So, this is a model we intend to replicate, even outside Nigeria.

We remain focused on driving our efficiencies and improving our cost to income ratio. We are happy to report that in 2020 operating expenses was up only marginally, by 0.5% year-on-year, which is significantly below the inflation rate, and we can immediately confirm that the major drivers of the marginal increase were largely regulatory costs, inflation-induced increases, and of course, we know the adjustment to the currency, which happened in 2020.

Despite all of this, and despite the sheer size of our operations and our Group, we recorded only 0.5% increase in OPEX year-on-year.

Now, our customer deposits grew very significantly, year-on-year, also, which basically speaks to the strength of our brand, the security and the safety that we offer to the banking public.

Net loans to customers grew by 19.7%, nearly 20%, and we’re very deliberate in writing cheques, basically supporting trade finance activities, and providing supports to the manufacturing sector, to the power sector, oil and gas, and general commerce. These were the sectors of growth. So, quality remains of utmost importance to us. I can confirm that we have limited exposure to those sectors that were badly impacted by COVID-19, specifically aviation and hospitality. We have very minimal exposures to those sectors.

We have also maintained a very strong market access, again, speaking to the strength of the brand. You recall that it was during 2020 that we achieved our $350 million Eurobond issuance under the 144A RegS, five-year senior unsecured Eurobond. The interesting thing about this issuance was that it was the first benchmark Eurobond issue by an African bank in 2020. Even with COVID, we were able to successfully issue this Eurobond, and it was well supported by global investors, so we are proud of that achievement, which has opened the door for other African issuers to do their ow