FCMB Group Sustains Growth

• FCMB Group Sustains Growth

Some stakeholders who had expressed concerns that FCMB Group, comprising First City Monument Bank (FCMB) Limited, FCMB Capital Markets Limited, CSL Stockbrokers Limited and CSL Trustees Limited, delayed the release of its 2016 nine months results were delighted last week when the Group released the audited results, which showed improved performance.

Other banks had announced their results showing mixed performance. While some recorded improved bottom-lines, some witnessed declined in profitability.

However, FCMB Group, in its audited results for nine months made available last week, posted improved results, thereby raising hopes of shareholders to smile home at the end of the current financial year.

Nine months financial performance

FCMB Group Plc recorded gross earnings of N140.7 billion up by 28 per cent from N109 billion in the corresponding period of 2015. Interest income fell marginally by 1.2 per cent to N93.2 billion from N94.4 billion in 2015, while Interest expenses also fell by 9.8 per cent to N40 billion, from N44 billion. FCMB ended the period with net interest income of N53.2 billion in 2016, showing an increase of 6.3 per cent from N50 billion in 2015.

Net fee and commission income rose by 2.6 per cent from N10.4 billion to N10.6 billion, while total net non-Net interest income rose by 9.2 per cent from N48.7 billion to N53.2 billion. Total net non-interest income rose by 128 per cent from N19.6 billion to N44.8 billion resulting from a 612 per cent increase in foreign exchange (FX) income, from N5.0 billion in 2015, to N35.3 billion in 2016.

Net impairment loss on financial assets soared by 125 per cent to N34.4 billion, from N15.2 billion in 2015.

The group reported a profit before tax (PBT) of N14.2billion, showing a jump of 453 per cent from N2.563 billion recorded in the comparative period of 2015, while profit after tax (PAT) recorded higher growth of 595 per cent to N12.9 billion from N1.866 billion. FCMB Group grew its total assets to N1.241 trillion, from N1.159 trillion in 2015.

Management’s comments

Commenting on the results, Managing Director of FCMB Group Plc, Mr. Peter Obaseki, said: “The audited nine months results for the period ended September 2016, reflects our focus on key soundness ratios and the need to maintain buffers against a sustained adverse operating environment. Accordingly, capital adequacy and liquidity ratios have held up at 17.6 per cent and 36.8 per cent, respectively.

Overall, PBT came in at N14.2 billion, a 453 per cent growth, translating to earnings per share (EPS) of 87 kobo, up 30.6 underlying revenue momentum remains strong while cost optimisation programme led to a two per cent drop in operating expenses, despite inflationary spiral respectively.

The macro economic conditions in the final quarter remain challenging; we will keep up a conservative stance.”

Also speaking on the performance, Group Managing Director of FCMB Limited, Mr. Ladi Balogun said: “The audited results of the bank reveal that the extraordinary performance of Q2 2016 offset the loss recorded in Q3 of N2.4 billion, thereby resulting in strong year-on-year profit growth of 913 per cent.

In order to avoid an unsustainable, non-cash, spike in earnings from further revaluation gains in Q3, the bank also significantly stepped up its loan loss provisions.”

He added that the macroeconomic climate is taking a significant toll on the bank’s borrowing customers across all segments.

“Accordingly, the bank will maintain high provision coverage ratios (currently 131 per cent), continue to strengthen our capital adequacy ratio (currently 16.9 per cent) and our liquidity ratio (currently 36.8 per cent),” he said.

Balogun said while the bank’s prudential ratios should continue to strengthen into Q4 (modestly buoyed by a tier 2 capital injection of N7.5bn in November), the bank does not anticipate improvement in the fourth quarter earnings.

“Nonetheless, we are pleased with the gains we continue to record in growing our business in areas such as retail banking (with a 315 per cent growth in profitability) and increasing our share of banking activities in the agricultural sector. In spite of the fact that we have seen several revenue lines diminish due to external factors – as we build a more resilient balance sheet, we will be well positioned for a strong rebound in core earnings in the medium term,” he said.

The CEO assured that FCMB would to continue to distinguish itself by delivering exceptional services, while enhancing the growth and achievement of the personal and business aspirations of its customers and all stakeholders.

Analysts’ Assessment

Assessing the results, analysts at FBN Quest, said although profit before provisions grew by a healthy 57 per cent year on year( y/y), the expansion in loan impairment charges proved more significant.

“To put the magnitude of the impairments taken in Q3 into context, it is around 212 per cent higher than the average quarterly provision run rate of N6.7 billion for H1 2016. Returning to pre-provision profits, the other income line which grew by 168 per cent y/y to N18.8 billion (on the back of fx gains) was the key driver. Although funding income also grew, its impact was modest. Sequentially, the pre-tax and after tax losses compare with PBT and PAT of N14.1 billion and N16.6 billion respectively in Q2 2016. The earnings also surprised negatively relative to our PBT and PAT forecasts of N8.6 billion and N7.3 billion.

Similar to the y/y trends, the wide variance between our PBT forecast and actual was due to the negative surprise in loan loss provisions which came in around 218 per cent higher than what we were modelling.

Above the provisions line, profit-before-provisions beat our forecast by 10 per cent because of the positive surprise in other income,” they said.

FBN Quest explained that the spike in impairments was primarily due to oil & gas exposures (particularly downstream) which already accounted for around 22.3 per cent of non-performing loans (NPL’s) in Q2 2016.

“Since most of these loans are denominated in foreign currency, the prevailing exchange rate of N315 per United States dollar versus around N200 previously most likely necessitated the marked increase in impairments. State governments’ loans, which accounted for around 25 per cent of the bank’s loan book, may also have contributed.

The impairment charge for nine months 2016 implies a cost-of risk of 7.5 per cent. Management had stated on its Q2 2016 conference call that it expects to restructure around 25 per cent of its loan book, resulting in tenor extensions of between 1-2 years,” the analysts said.

They said they believe that restructurings and write-off of NPLs most likely explain the improvement in the NPL ratio to 3.4 per cent (4.7 per cent as at Q2 2016).