First Bank of Nigeria Holdings Plc (''FBNH'') released unaudited Q3-17 results yesterday, wherein gross earnings grew marginally by 1.85% q/q and 0.40% y/y (1.77% above our estimate), while PBT and PAT rose 28.01% q/q (71.19% y/y) and 24.44% q/q (145.47% y/y), respectively. The growth in earnings is broadly supported by (1) growth in funding income (by 7.73% q/q and 17.43% y/y), which more than subdued the 6.57% and 37.91% y/y contraction in NIR (above our estimate by 13.30%) and (2) decline in opex by 3.51% q/q (+2.27% y/y) to miss our estimate by 4.14%.
The contraction in NIR stemmed from significant declines in dividend income (-50.62% q/q and +119.18% y/y), net gains on foreign exchange income (-72.86%q/q and -96.16% y/y), net gains on investment securities (-259.215 q/q and -270.29% y/y), net fee income (-7.95% q/q and -3.77% y/y), net insurance premium (-33.44% q/q and -23.79% y/y), and net gains on financial instruments (-37.77% q/q and -13.82% y/y). The cumulative impact more than offset the surge in other income (+233.80% q/q and +209.68% y/y).
For the rest of 2017, we expect interest expense will remain elevated, as liquidity pressure (liquidity ratio was down to 47.4% in 9M-17, from 50.4% and 52.7% in H1-17 and FY-16, respectively) persists, and with the US Feds rate hike impact on the LIBOR further compounding the already stretched LCY interest rate. Although we expect the re-pricing of assets, higher yields on investment securities, and FX interest income to support NIM, risk asset creation will remain subdued as the bank takes strategic steps to clean its loan portfolio. On impairment charges, the bank's restructuring of some FCY obligations reflected in the contraction in NPL during the period. We expect this to contract further, as the bulk of the upstream oil and gas reclassification reflects in the balance sheet, resulting in lower provisioning by FY-17 in line with our previous forecast.