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FBN Holdings maintains lower cost of risk…

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FBN Holdings plc maintained lower cost of risk charges in its full year 2012 financial result, as the company’s impairment charges of N12 billion in 2012 were down sharply from the N54 billion recorded in the previous year, showing a positive surprise to analyst.

As a result, the company’s cost of risk fell to 88bps, from 450bps last year. This compares with GTBank at 60bpts and Zenith Bank at 90bpts, analysts have said.

Profit after tax of the company increased by 306.9 percent year-on-year to N75.7 billion in 2012, from N18.6 billion in 2011. This was however 10 percent below analysts forecast, largely on the difference in the tax charge.

Analysts were baffled by the movements in the tax charges and tax rates as the company, under the new restated International Financial Reporting Standards (IFRS) recorded a tax charge of N17 billion and implied tax rate of 18 percent in full year 2012, versus 12 percent in nine months 2012. The previous set of restated full year 2011 IFRS accounts showed a tax charge of N5.2 billion and implied tax rate of 13 percent. The new restated full year 2011 IFRS accounts show a tax charge of N17 billion and implied tax rate of 48 percent.

Analysts were satisfied with the None Performing Loan (NPL) ratio that improved to 2.6 percent in full year 2012, from 3.4 percent at nine month 2012, but remained flat versus full year 2011. On an absolute basis, NPL rose 24 percent – roughly in line with loan book growth of 23 percent, while the coverage ratio stood at 95 percent.

Another area of interest to analysts in the company’s performance was improvement in Net Interest Margin Securities (NIMS). On analysts’ numbers, NIMS increased to 8.6 percent from 7.7 percent in full year 2011 and 8.3 percent in nine months 2012. Asset yields rose 160bpts to 11 percent over the year, which more than offset the higher funding costs, which rose 70bps to 2.7 percent. Even with the increase in the percentage of term deposits on the book, FirstBank Holding still enjoys relatively lower funding costs compare with GTBank at 3 percent and Zenith Bank at 3.5 percent, analysts from Renaissance Capital, said.

The result shows that Net Interest Income (NII) came in at N225 billion, up 28 percent year-on-year (YoY) and up 26 percent quarter-by-quarter (QoQ). “We were expecting full year 2012 NII of N212 billion,” they said.

From the analysts point of view, net loans were up 23 percent YoY to N1 542 billion, well ahead of peers – Zenith Bank and GTBank, which were up by 11 percent and 10 percent, respectively, “we were looking for 20 percent net loan growth in full year 2012, so slightly ahead. QoQ growth was slower in fourth quarter 2012, at 1 percent from the 10 percent peak in second quarter 2012. Deposit growth came in at 23 percent YoY with QoQ, growth was 5 percent. There was deterioration in the mix with term deposits rising to 21 percent of the book, up from 15 percent in full year 2011. LDR of 64 percent, was flat on full year 2011. Total assets increased by 10 percent YoY to N3.2 trillion.”

However, analysts are concerned about restatement of numbers that raises questions about the quality of reported numbers.

“Overall, the quality of these numbers was disappointing in our view. It is impossible to ignore the material (and multiple) revisions to historic numbers as it raises the risk that the current set of reported numbers could be subject to revisions as well further down the line. We maintain our preference for GTBank and Zenith Bank from a quality perspective. First Bank is trading on 1.3x and 6.6x 2013E P/B and P/E, respectively, versus GTBank on 2.3x and 7.6x and Zenith Bank on 1.4x and 6.3x, respectively. We maintain our HOLD rating and TP of N20.7/share,” the analysts said.