FCMB: Expect a big turnaround

First City Monument Bank (FCMB) is expected to report a big turnaround for the 2018 financial year. The bank’s full year earnings report, expected to reach the market in weeks, could show profit at a four-year high. That would more than compensate for a 34% profit drop in 2017.

Earnings growth gained momentum in the third quarter, stretching out revenue growth from a slowdown in the second quarter. Profit growth continued to accelerate from 64% in the first quarter to 90% in the second quarter and more than doubling at the end of the third quarter.

Other operating income, which was the main weak point on revenue performance at half year, rebounded in the third quarter – showing over one and half times lifting year-on-year. That provided the remedy for the revenue weakness in the second quarter and provided the strongest quarterly growth so far in the year.

The bank’s management lost its firm grip on costs, as net impairment loss on financial assets changed direction from declining to rising again. The gain in revenue however enabled the bank to absorb the cost increases and still improve profit margin.

The bank closed the third quarter operations with gross earnings of N132.87 billion, an increase of 12% year-on-year, accelerating from 8.3% in the second quarter. Other operating income provided the spur for the acceleration during the period, rising by 152% to N13 billion at the end of September.

Net trading income and Fee and commission income maintained their strengths in revenue performance in the third quarter. Net trading income advanced by 166% to N4.58 billion year-on-year and fee and commission earnings rose by 29% at the end of September 2018. Interest income continued to weaken from 9.3% growth in the first quarter to 3% in the second and to a marginal decline in the third quarter.

Gross income is estimated to be in the region of N180 billion for FCMB for the 2018 financial year. That has changed the initial outlook of flat growth to an increase of 6% for the year. Gross earnings had declined by about 4% to N169.88 billion at the end of 2017.

The only favourable cost behaviour came from interest expenses, which declined by 9% to N42 billion over the review period against the marginal decline in interest income. That permitted an increase of about 7% in net interest income to over N53 billion at the end of the period. Interest cost continued to claim a reduced share of interest income at 44% at the end of the third quarter compared to 48% in the same period in the preceding year.

The bank’s effort in growing low cost customer deposits paid off in the third quarter, as deposit portfolio grew by close to 10% over the closing figure in the preceding year. The figure had dropped at half year from the first quarter level. Due to banks went down by 18% from the half year position to N29 billion at the end of the third quarter.

Net impairment loss on financial assets grew by 15.6% year-on-year at the end of September – a sudden change of direction from a drop of 26.5% at the end of half year operations. Loan loss charges had dropped by 36% in 2017. The increasing record is despite a 7% cut down in the bank’s net lending position to N602 billion at the end of September.

Despite increases in operating cost lines that was led by a 30% rise in other operating expenses, the bank still achieved a 121% leap in operating profit to N14.77 billion at the end of September, stretching out from 91% at half year.

FCMB extracted an increased proportion of profit from the naira of its revenue at the end of the third quarter. With that, it raised net profit margin from 4.6% in the same period in 2017 and from 6.8% at the end of June to 8.5% in September.

The bank posted an after tax profit of N11.34 billion at the end of the third quarter operations, an increase of 107% year-on-year. Its after tax profit had dropped by 34% to N9.41 billion at the end of 2017. Based on the third quarter performance, the bank is expected to close the year with an after tax profit in the region of N15 billion – the highest profit figure in four years.

The bank earned 57 kobo per share at the end of September, up from 28 kobo in the same period in 2017. It earned 48 kobo per share at the end of 2017 and paid a cash dividend of 10 kobo per share. FCMB has been consistent with dividend payment since 2013.