FBNHoldings, Head of Investor Relations
Good day ladies and gentlemen. Welcome to the FBNHoldings Half Year 2020 Financial Results conference call. Thank you for taking time to join us on the call today and for your continuous interest in FBNHoldings. My name is Tolu Oluwole, Head, Investor Relations at FBNHoldings.
Following an overview by the Group Managing Director of FBNHoldings, an interactive Q&A session will be available. But 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 functionality to ask questions and microphones will be unmuted once called upon to speak. For efficiency of the process, questions will be taken in batches of two or three before responding, and then after asking questions, microphones must always be put on mute except when speaking.
In addition, once your questions have been taken, please lower the hand after asking the questions. Questions can also be submitted via the Q&A functionality where we will take questions intermittently. That said, I would like to hand over the call to the Group Managing Director of FBNHoldings, Mr UK Eke, MFR, please go-ahead sir.
FBNHoldings, Group Managing Director (GMD)
Thank you very much Tolu. Good afternoon and good morning ladies and gentlemen. I would like to add my warm welcome to you all. This is the FBNHoldings Investor and Analysts results presentation for half year ended June 30, 2020. As previously announced my name is UK Eke, the Group Managing Director of FBN Holdings Plc.
It is my pleasure to introduce my colleagues that are on this call with me today. As always Dr Sola Adeduntan, the CEO of FirstBank, the Commercial Bank. We also have Kayode Akinkugbe, the CEO of FBNQuest Merchant Bank, Wale Ariyibi, the Chief Financial Officer of FBNHoldings, Patrick Iyamabo, the CFO of FirstBank, Segun Alebiosu, the Chief Risk Officer of FirstBank is also here. Ini Ebong, the Group Executive, Treasury and Financial Institutions, and International Banking, FirstBank is also here on the call.
By way of background and I am sure you all have the statistics, but across the globe, 2020 has been a very challenging and I guess I should say unprecedented year as we continue to deal with the health, financial and economic impacts of the COVID-19 pandemic. Early indications from the data available have shown monumental contraction across the globe. In the US, Europe and other economic blocks have all been impacted. I think the only good news coming out of the global economy is China which by Q2 of 2020 presented the globe with a semblance of, I would say, a V-shaped recovery trajectory. Otherwise, it has been one challenging sector or industry or region to the other.
We do believe that the Q2 economic data for Nigeria itself will not be different. The global trend should also impact Nigeria for obvious reasons particularly on the back of the lockdown that we experienced for the most part of Q2 in Nigeria. Notwithstanding these challenges, we are pleased to report a strong performance which for us is a testament to the resilience and the inherent strength of our institution. Having laid that background, again I confirm that we released our financial statements on Wednesday, 29 July 2020 to the market and we have also posted today’s presentation on our website. I hope that you have taken time to look through because we would like for this to be interactive as much as possible. I will go straight through slide 5 of the deck. I am delighted to report that despite the very tough operating environment, which I already alluded to, our gross earnings was up 5.8% year-on-year as you can see.
The profit after tax for the period was up 56.3% on the back of very strong growth in non-interest income and I will give you the statistics momentarily. The progress we made in our non-interest income was driven largely by treasury activities, so we benefited from increased volatility in the marketplace. Of course, as well as increasing market share in our e-banking segment. For us to understand the scale or impact of the progress we made year-on-year, the non-interest income line was up 47%.
Interest income obviously was impacted by the low yield environment and relative to the first half of 2019, net interest margin was down but we are reporting very gladly 110 bps growth in net interest margin from 6.3% in Q1 of 2020 to 7.4% in Q2 of 2020, supported by a drop in our cost of funds which was as low at 2.3% in Q2 of 2020.
I think it is appropriate to emphasise the progress we have made on our Agent Banking which was the major contributor to the non-interest income. Our Agent Banking network increased by over 100% year-on-year. We ended June with over 59,000 agents.
In terms of value of transactions processed, we are glad to report that we were able to achieve about NGN5.71 trillion in value terms compared to NGN1.61 trillion for prior period 2019. This is phenomenal, if you imagine that we were able to grow both count and value by over 250% in one year. Clearly, we are monetising the Agent banking proposition and its revenue contribution to the total e-business income and this continues to grow.
The growth and the volume and value across the e-channels continues to offset the reduction in regulated fees, which has allowed us to keep the revenues on that line flat year-on-year. You recall that in January this year Central Bank of Nigeria came up with a regulation which slashed fees on e-banking products as high as 50%. We 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 from that line, and therefore we are glad about the progress we are making on that platform.
In the second quarter under review, I also want to confirm as you may have read already in the papers and watched the news, we successfully completed the sale of our insurance subsidiary, the FBN Insurance Limited to our partners Sanlam of South Africa. That created the platform and the lever for us to inject additional Tier 1 capital into our flagship, FirstBank, effectively taking the CAR to over 16.5%, and this is before capitalising the profit year to date.
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 grand ambition.
I will then move onto slide 6, and as you can see, we grew our top line and bottom line while strengthening our balance sheet. Earlier I mentioned the positive performance in gross earnings and profit. I think it’s noteworthy at this point to say that despite the adjustment of the exchange rate, despite the rising inflation, and the impact of the current pandemic, we were able to maintain the cost profile flat year-on-year. This is a clear indication of the commitments we made and that we are on track to keep our costs going down with a view to achieving over the next three years cost-to-income ratio about 55%. We are on track on that line.
We have also strengthened our balance and grown the loan book. We grew the loan book about 8% from a very high base and then the increase in the impediment charge which we are reporting was driven by translation impact on foreign currency loans on our books and of course the weak macro environment which was not unexpected during the period under review.
Slide 7 shows very clearly the increasing shareholder return. It also demonstrates improved non-performing loans (NPL) ratio and strengthened capital position across our entities or businesses, which then gives us the capacity to deliver on the long-term ambitions we have set for ourselves. Again, to emphasise on the NPL line we are happy that the NPL ratio has remained in single digit territory and continues to trend downwards. What we see is 8.8% as at June 2020.
You will recall that we closed December 2019 at 9.9%. The trending down will continue until we are able to achieve sub five. That is not the guidance for