FCMB beats last year’s closing profit on N51bn FX gain in six months

FCMB Group Plc rode on the back of foreign exchange (FX) gain of almost N51 billion at half-year to lift after-tax profit two and half times to N35.4 billion, already beating its full-year profit of N32.6 billion in 2022.

The development has added yet a new speed to the strong earnings acceleration of the bank seen in the first quarter (Q1) and set the stage for outstanding profit advance for the second year.

The half-year interim financial report of the N3.7 trillion financial group for the period ended June 2023, shows a continuing acceleration of profit growth from 56 percent to N32.6 billion at the end of 2022 to 85 percent to N9.3 billion in (Q1) and further by 159 percent at half-year.

The FX windfall enabled the bank to dress up major incursions of interest and credit impairment expenses on earnings that could have slowed down the profit momentum during the period.

The cost of funds had soared twice ahead of interest earnings and squeezed net interest margin during the review period.

While interest income grew by less than 51 percent year-on-year to N149 billion at half-year, interest expenses rose by 102.3 percent to N76.7 billion over the same period. The interest cost of generating the naira of interest income, therefore, grew from less than 39 kobo to over 51 kobo in the same period.

The incursion on interest earnings limited the increase in net interest income to 20.2 percent to N72.3 billion at half year, improving however from 12.7 percent increase to N31.7 billion at the end of the first quarter.

The big boost came from other revenue that was driven by FX gain — which jumped from other loss of N640.6 million in the same period last year to N52.2 billion at the end of June 2023.

The inflow made a big difference in gross earnings, which jumped by 88.7 percent year-on-year to N238.2 billion. This is an acceleration from 33 percent growth in gross earnings to N282 billion at the end of 2022 and 50 percent leap to N87.4 billion in Q1.

Further pressure from the side of cost came from net impairment expenses on financial assets, which multiplied more than four times from N10.7 billion to N47 billion over the review period.

The figure is already approaching twice the N25 billion credit loss expenses the bank recorded at the end of the 2022 financial year.

Much of the credit losses occurred in the second quarter (Q2), as the bank ended the Q1 operations in March with net loan loss expenses of N5 billion.

The summary of the bank’s earnings story at half-year is that robust growth in revenue was strengthened by some cost saving from operating expenses to overwrite major rising costs and permitted an increase in profit margin.

Net profit margin improved from 10.8 percent in the same period last year to 14.9 percent at the end of June 2023.

Total operating expenses slowed down further relative to revenue from 28 percent in Q1 to 23.6 percent at half-year to close at N70.6 billion. That lowered operating cost margin from 45.2 percent in the same period last year to 29.6 percent at the end of June 2023.

Critical issues to watch in the second-half are the galloping increases in interest and loan impairment expenses and whether revenue would continue to grow ahead of them to maintain the high-speed growth of the bottom line.