Braving The Odds To Deliver Value — FCMB

Owing to the rising default in loan repayment forced by the
Covid-19 pandemic and the declining economy that affected
borrowers’ revenue inflow, First City Monument Bank (FCMB) faced an
upsurge in credit loss expenses in the third quarter but its
management waded through the strain and maintained the elevated
profit performance it demonstrated at half-year.

The situation which affected lenders globally also forced the
bank’s net loan impairment expenses to rise to N5.6 billion
quarter-on-quarter in the third quarter ended in September 2020.
This pushed up the year-to-date loan loss expenses to more than N13
billion, jerking up the year-on-year rise from 41 per cent at
half-year to over 70 per cent at the end of the period.

The resumption of new lending in 2019 after two years of break,
occasioned by the Loan to Deposit Ratio (LDR) policy of the Central
Bank of Nigeria (CBN), appears to be fueling the rising asset
losses. Last year, the bank grew the customer credit portfolio by
13 per cent and further growth of close to 11 per cent had happened
at the end of the third quarter to N793 billion. The bank’s
management is not letting the asset quality strain to impede the
impressive growth record of the bottom line. Instead, it gained
speed on profit growth from the half-year position to 30 per cent
year-on-year at the end of the third quarter. FCMB is maintaining
the path of growing profit for the third consecutive year though it
has remained well below the peak profit figure of N22 billion
attained as far back as 2014.

The bank maintained its earnings growth levers on the upbeat,
spurred by a step up in interest earnings from 8 per cent growth at
half year to 10 per cent increase year-on-year to N112 billion at
the end of the third quarter. This was punctured by non-interest
income, which shrank from 13 per cent increase at half-year to
close flat at N34 billion at the end of September 2020.

Nevertheless, FCMB is still seeing the highest growth rate in
revenue in four years in the current financial year. Interest
income is growing at the highest rate in for the bank since 2014.
At over N146 billion at the end of the third quarter, gross
earnings improved by 7.8 per cent year-on-year, slowing down from
over 9 per cent improvement at half-year. This remains the best
revenue growth record for the bank in four years against a slight
decline in 2019.

Interest cost extended its benign behaviour in the third quarter
with a year-on-year decline stepping up from 3 per cent at
half-year to roughly 4 per cent to close at N44 billion at the end
of the third quarter. Improving interest income with declining in
interest expenses are the favourable combination for FCMB in 2020.
The share of interest income devoted to interest expenses went down
from 45 per cent to 39 per cent over the review period. The
positive effect is a top record growth of 21 per cent in net
interest income to N66 billion at the end of the third quarter
compared to less than 5 per cent improvement at the end of
2019.

The major increase in impairment loss on financial assets
however did not let all the increase in net interest income get
down into profit. Net loan impairment expenses rose by 70 per cent
to over N13 billion at the end of September 2020. The expenses
claimed nearly 20 per cent of net interest income against 14 per
cent in the same period last year.

With the strength of improving revenue and declining interest
expenses, FCMB was able to dilute the impact of rising credit loss
expenses and still add some momentum to the bottom line. The bank
closed the third quarter with an after-tax profit of roughly N14
billion, which is a year-on-year growth of 30 per cent – stepping
up from 29 per cent record at half-year. Profit is accelerating
this year from 16 per cent growth the bank recorded at the end of
2019. The ability to grow profit more than three times ahead of
revenue underscores a gain in profit margin this year. Net profit
margin improved from 7.9 per cent in the same period last year to
9.5 per cent at the end of the third quarter. This is the highest
net profit margin the bank has seen since 2015. The strength came
from cost saving from interest expenses and a moderated operating
cost during the review period.

The improvement in interest income reflects the expansion of
earning assets with loans and advances growing by N77 billion over
the 2019 closing figure of N715 billion and investments rising by
N64 billion to over N303 billion over the same period. Over the
nine months of the year, it has grown the size of the balance sheet
by N369 billion or 22 per cent to close at over N2 trillion – the
strongest growth since 2012. Earnings per share amounted to 70 kobo
at the end of the third quarter operations, improving from 54 kobo
per share in the same period last year.

The Bank remains on track with our full-year expectation that it
would retain the key strengths of growing revenue, moderating
interest expenses and improving profit margin and stay the course
of rebuilding profit for the third straight year in 2020.

Owing to the rising default in loan repayment forced by the
Covid-19 pandemic and the declining economy that affected
borrowers’ revenue inflow, First City Monument Bank (FCMB) faced an
upsurge in credit loss expenses in the third quarter but its
management waded through the strain and maintained the elevated
profit performance it demonstrated at half-year.

The situation which affected lenders globally also forced the
bank’s net loan impairment expenses to rise to N5.6 billion
quarter-on-quarter in the third quarter ended in September 2020.
This pushed up the year-to-date loan loss expenses to more than N13
billion, jerking up the year-on-year rise from 41 per cent at
half-year to over 70 per cent at the end of the period.

The resumption of new lending in 2019 after two years of break,
occasioned by the Loan to Deposit Ratio (LDR) policy of the Central
Bank of Nigeria (CBN), appears to be fueling the rising asset
losses. Last year, the bank grew the customer credit portfolio by
13 per cent and further growth of close to 11 per cent had happened
at the end of the third quarter to N793 billion. The bank’s
management is not letting the asset quality strain to impede the
impressive growth record of the bottom line. Instead, it gained
speed on profit growth from the half-year position to 30 per cent
year-on-year at the end of the third quarter. FCMB is maintaining
the path of growing profit for the third consecutive year though it
has remained well below the peak profit figure of N22 billion
attained as far back as 2014.

The bank maintained its earnings growth levers on the upbeat,
spurred by a step up in interest earnings from 8 per cent growth at
half year to 10 per cent increase year-on-year to N112 billion at
the end of the third quarter. This was punctured by non-interest
income, which shrank from 13 per cent increase at half-year to
close flat at N34 billion at the end of September 2020.

Nevertheless, FCMB is still seeing the highest growth rate in
revenue in four years in the current financial year. Interest
income is growing at the highest rate in for the bank since 2014.
At over N146 billion at the end of the third quarter, gross
earnings improved by 7.8 per cent year-on-year, slowing down from
over 9 per cent improvement at half-year. This remains the best
revenue growth record for the bank in four years against a slight
decline in 2019.

Interest cost extended its benign behaviour in the third quarter
with a year-on-year decline stepping up from 3 per cent at
half-year to roughly 4 per cent to close at N44 billion at the end
of the third quarter. Improving interest income with declining in
interest expenses are the favourable combination for FCMB in 2020.
The share of interest income devoted to interest expenses went down
from 45 per cent to 39 per cent over the review period. The
positive effect is a top record growth of 21 per cent in net
interest income to N66 billion at the end of the third quarter
compared to less than 5 per cent improvement at the end of
2019.

The major increase in impairment loss on financial assets
however did not let all the increase in net interest income get
down into profit. Net loan impairment expenses rose by 70 per cent
to over N13 billion at the end of September 2020. The expenses
claimed nearly 20 per cent of net interest income against 14 per
cent in the same period last year.

With the strength of improving revenue and declining interest
expenses, FCMB was able to dilute the impact of rising credit loss
expenses and still add some momentum to the bottom line. The bank
closed the third quarter with an after-tax profit of roughly N14
billion, which is a year-on-year growth of 30 per cent – stepping
up from 29 per cent record at half-year. Profit is accelerating
this year from 16 per cent growth the bank recorded at the end of
2019. The ability to grow profit more than three times ahead of
revenue underscores a gain in profit margin this year. Net profit
margin improved from 7.9 per cent in the same period last year to
9.5 per cent at the end of the third quarter. This is the highest
net profit margin the bank has seen since 2015. The strength came
from cost saving from interest expenses and a moderated operating
cost during the review period.

The improvement in interest income reflects the expansion of
earning assets with loans and advances growing by N77 billion over
the 2019 closing figure of N715 billion and investments rising by
N64 billion to over N303 billion over the same period. Over the
nine months of the year, it has grown the size of the balance sheet
by N369 billion or 22 per cent to close at over N2 trillion – the
strongest growth since 2012. Earnings per share amounted to 70 kobo
at the end of the third quarter operations, improving from 54 kobo
per share in the same period last year.

The Bank remains on track with our full-year expectation that it
would retain the key strengths of growing revenue, moderating
interest expenses and improving profit margin and stay the course
of rebuilding profit for the third straight year in 2020.