FBN Holdings Plc (Nigeria) – HY2021 Earnings Results Call Transcript

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

Tolulope Oluwole

Head, Investor Relations

Good day, ladies and gentlemen, and welcome to the FBNHoldings half-year 2021 earnings call. Thank you for taking the time to join the call today and for your continuous interest in FBNHoldings. My name is Tolu Oluwole, Head, Investor Relations. I am the moderator for this call. 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, and as typical, I will go through a few conference protocols. Participants are encouraged to please use the raise-hand function to ask questions, and microphones will be unmuted once called upon to speak. For efficiency of this process, questions will be taken in batches of two or three before responding. And after asking questions, microphones must always be muted, except when speaking, this is very important to avoid interruptions. That said, I would like to hand over the call to the Group Managing Director of FBN Holdings PLC, Mr UK Eke. Please go ahead, sir.

UK Eke

Group Managing Director

Thank you very much, Tolu, and let me say good afternoon, and good morning, ladies and gentlemen, and I would like to welcome you to the FBN Holdings PLC investor and analyst result presentation. This is for the half-year ended 30 June 2021. My name is UK Eke. I am the Group Managing Director of FBN Holdings PLC.

As always, I have my colleagues on this call, and I would like to introduce them very quickly – Dr Adesola Adeduntan, the CEO of FirstBank, Kayode Akinkugbe, the CEO of FBNQuest Merchant Bank. We have Wale Ariyibi, the CFO of FBN Holdings PLC. I would also like to introduce Patrick Iyamabo, the CFO of FirstBank, Segun Alebiosu, the CRO of FirstBank, and we have Ini Ebong, the Group Executive Treasury and International Banking, who is also here. Anchoring this call, as you heard earlier, is Tolu Oluwole, the Head, Investor Relations.

I think a good way to start this presentation will be to say that 2020 was indeed a very challenging year for all parties across the globe, and so far, 2021 has not been any better. We do acknowledge the fact that there has been a massive rollout of vaccines across the globe, but we also know that the pandemic has remained, I would say, resilient, particularly with reported resurgence in certain parts of the world, and lately, we have also heard of new variants that have been spotted.

So, I have to say that we are still in for a very tough ride. However, there are positive signs that have emerged between last year and now. First, Nigeria exited recession in 2020. That is good news, and between then and now, the economy has continued its recovery path, and this is 2021. You recall that in the first quarter, we grew 0.5% on the GDP and this is on the back of the 0.1% growth for the last quarter of 2020. So, I will then move to our presentation, and I would start with slide 5, straightaway. As you can see, our businesses over the past 12 months consistently posted improved quarter-on-quarter performance. This resilience is proof that our strategy has been successful. This is something that we are proud to share, and as you see, the profits before tax is up 9.2% year on year, and that is on the back of 48.1% increase in non-interest income.

Also, interesting to note is the asset quality improvement that you obviously started spotting two years ago. We have been on that steady path to improving our NPL ratio, and impairment charge was down 20% year on year. NPL ratio, like I said, showing good signs on a steady path of a reduction, moving from 7.7% we reported at the end of the 2020 financial year to close at 7.2%, so we are happy with the journey. Now, in line with our revenue diversification objective, we have continued to strengthen our electronic banking business, and you can see we recorded a 32.7% increase year on year on that line of business, and we are pleased again with the sustained increase in our agent banking network. Interestingly, we closed June 2021 with over 117,000 agents across the length and breadth of Nigeria.

Here, we have a very strong value proposition, very straight and very clear – enhanced overall penetration of banking and also support the deepening of financial inclusion. This is apart from rendering services to our clients and the entire banking population. Now, I would also report that we are happy with the growth we recorded, with respect to the loan book, which grew during the period by 14.5% (year to date). We have been very deliberate in focussing on manufacturing sector, power, oil and gas downstream, in addition to a strong foray into the public sector. And we have maintained, as you will expect, quality at entry, and you will hear more about the NPL on vintage book, which has continued to be well below 1%.

In addition to that, I would say we have a very healthy pipeline of transactions and deals, even as we seek to optimise the value chain in the short to medium term. Now, during this period, also, specifically on 29 April, the Central Bank appointed new non-executive directors at both FBNHoldings and the Commercial bank. Of course, the executive management team was retained.

We think that the continuation of the executive management team reflects the regulators’ confidence in the direction of flight for the Group. It also ensures stability, underpinned by our sustained delivery of strategic imperatives as committed to the market and as mandated by the Board. This is what we have done over the last five and a half years or so. On that, I think it is important to dwell a bit longer on the achievements of this incumbent management team, and that takes me to slide 6. Clearly, you will see that we have made progress over the last six years, and I am going to just walk you through the slide. Now, you would notice that our focus has been on optimising the earnings of the Group. We have also done a great deal of work on diversifying our revenue base. Rather than relying on funding income, we have had to move along the lines of transaction-led banking and electronic banking activities, which is good.

We have also been very successful, I would say, in managing the book. The asset quality has continued to improve, and we have also increased on a sustainable basis the contribution of the international subsidiaries, where we are seeing right now nearly 30% contribution from the international banking operations of the Group, so this is good. And with respect to the NPL, again, for emphasis, if you check or remember where we were in 2016, 24.4% NPL ratio, that has come down very significantly to just about 7.2% at the end of June 2021. Now, this is good news for us. Overall, you will see an improvement in the post-tax return on average equity, which was 2.1% in 2016, and then now, we are reporting near double digits. It is 10% on the return on average equity for 2021 half year. Now, I have to say that by the time we get further down the presentation, we are tracking very well with respect to our strategic planning program, where we gave indication on where we want to land this great institution in the next three years.

We are committed and resolute that we will be able to implement all of these plans, so we will forge ahead, based on the new vigour, and this management team is committed to delivering our numbers. I would say that with respect to where we were in 2016, the commitment we have made to the market is that we will focus on cleaning up the book, strengthening transaction banking and will focus on reworking the Group diversification project, so that we do not rely so much on the Commercial bank, Nigeria. I think this has worked significantly over the last five years. But going forward, having concluded with the clean-up of the book, which is nearly completed, we are now embarking on a new growth phase, and that new growth phase will be anchored on delivering growth, enhancing profitability and restoring the Group to its leadership position. That is the commitment we are making for the near to medium term. I will go to slide 7 just to try and spend more time on the specific things we have done.

On this slide, we are happy tha