FCMB expects to post N73bn profit at full-year on huge FX gains

FCMB Group Plc expects to top up its after-tax profit of N49 billion at the end of the third quarter (Q3) to N73 billion at full year with a massive build-up of foreign exchange (FX) gains driving the bottom line.

Going by the full-year earnings forecast, the bank is expected to reap FX earnings in the region of N56 billion at the end of the year, soaring from N4.3 billion FX gains in the 2022 financial year.

The bank’s earnings forecast shows that a healthy final quarter is to be expected with strong revenue growth and an all-round slowdown in costs — to be led by net loan impairment charges.

The favourable cost-income balance is expected to yield an after-tax profit of N24 billion in the final quarter, accounting for 33 percent of the anticipated full-year profit.

The Q3 interim financial report of FCMB Group for the period ended September 2023, shows a sustaining outstanding growth in profit from 85 percent to N9.3 billion in the first quarter (Q1) to 159 percent to N35.4 billion at half-year and further by 114.4 percent to N49.2 billion at the end of Q3.

If the full-year profit target is realised, it would be a big leap of about 124 percent over the bank’s closing profit figure of N31.1 billion in 2022, accelerating from 48.8 percent advance in the year.

The FX gains remain the main upside force for the bank absorbing major incursions of interest expenses and bad loan charges on earnings, which could have slowed down the profit momentum for the period.

The two cost elements constitute the critical operating issues we placed on the watch at the end of the half-year operations.

Cost of funds maintained its rapid growth at the end of Q3 at 94.3 percent to N118.6 billion far above interest earnings that grew by 55 percent to N239 billion.

The imbalance lowered the increase in net interest income to 29.5 percent to stand at N120.5 billion over the review period, improving, however, from 20.2 percent growth to N72.3 billion at half-year.

The cost of funds for generating the naira of interest income grew from 39.6 kobo to over 48.3 kobo over the period.

The second major cost incursion came from net credit losses, which tripled to roughly N57 billion at the end of Q3. The figure is more than twice the N25 billion loan losses the bank recorded for the entire 2022 financial year.

The increase in loan loss expenses claimed all the N27.4 billion gains in net interest income, resulting in a drop of 14.6 percent in net interest income after the bad loan charges to N63.5 billion.

There was, however, a strong drop in quarterly loan losses from N42 billion in the second quarter (Q2) to N10 billion in Q3 and the bank’s management expects a further drop to N7 billion in the final quarter, according to forecast.

The difference that covered the lost ground in net interest earnings is the apparent windfall from other revenue that was driven by FX gains. The income line multiplied close to 32 times from N1.9 billion in the same period in 2022 to N61.2 billion at the end of September 2023.

The inflow is the main driving force in gross earnings, which rose by 75.7 percent year-on-year to N351.5 billion at the end of Q3. FCMB had grown gross earnings by 33 percent to N282 billion at the end of 2022.

Total operating expenses were moderated at 31.7 percent of gross earnings, significantly down from 43.2 percent margin in the same period in the prior financial year.

The summary of the bank’s earnings story at the end of Q3 is that robust FX earnings helped to overwrite major incursions from interest and loan loss expenses, raised margins and powered an outstanding profit growth for the period.

The bank closed the nine months of trading with a pre-tax profit of N55.1 billion and an after-tax profit of N49.2 billion. Net profit margin improved from 11.5 percent in the same period in 2022 to 14 percent at the end of September 2023.