First City Monument Bank [FCMB] experienced the worst pressure from credit loss expenses across quarters in the final quarter of the 2020 financial year.
The last quarter accounted for N9 billion or 41 percent of the full-year loan impairment expenses of N22 billion.
The increased loan losses encroached on the bank’s profit performance and collapsed the elevated profit performance that it demonstrated at the end of the third quarter. A 30 percent growth in after-tax profit at the end of September fell to 13 percent at full year.
The bank’s closing profit of N19.6 billion for the year remained well below the peak profit figure of N22 billion attained as far back as 2014. It is however a sustained upturn of the bottom line for the third straight year after a major drop in 2017.
Net loan impairment expenses rose by 62 percent to over N22 billion in the year. This is a sudden change of direction from three years of a sustained drop in credit loss expenses to 2019. It is a movement from the lowest loan impairment charge in five years in 2019 to the highest figure in three years.
The upsurge in credit losses seems to reflect the resumption of new lending to customers since 2019 after two years of break. In 2019, the bank raised the customer credit portfolio by 13 percent and further growth of 15 percent happened at the end of the 2020 financial year with a closing figure of N823 billion.
The bank’s management could not sustain the ability to prevent the asset quality strain to impede the growth of the bottom line as happened in the third quarter. Instead, net loan loss expenses claimed an increased share of net interest income at close to 25 percent compared to 18 percent in the preceding financial year.
A favourable development for the bank happened on the side of revenue, which helped management to moderate the high growth in loan loss charges. Gross earnings rose by 10 per cent to over N199 billion, which is the highest growth in revenue the bank has recorded any time since 2017.
Revenue growth was spurred by a 159 percent advance in other revenue to N10.5 billion for the year. Interest earnings grew by under 10 percent to N151 billion during the year, marking the highest growth rate for the bank since 2015.
The bank’s cost of funds did not follow the general downward pattern in the banking industry in 2020. Interest expenses only inched down by less than 2 percent for FCMB to close the year at over N60 billion.
However, the improvement in interest income with the slight decline in interest expenses was a favourable combination for the bank in the year. The share of interest income devoted to interest expenses went down from 44.7 percent to less than 40 percent over the review period. The development pushed up net interest income a clear 19 percent to roughly N91 billion at the end of the year.
The major increase in impairment loss on financial assets however claimed a good part of the increase in net interest income. There was no reasonable cost-saving anywhere else to moderate the impact of the increase in credit loss expenses on profit.
FCMB closed the 2020 financial year with an after-tax profit of roughly N19.6 billion, which is an increase of 13 per cent. This is a slowdown in profit growth for the second year from the increase of 16 per cent in 2019.
Despite the loss of momentum in the final quarter, the bank was able to grow profit a little ahead of revenue in 2020. This represents a slight gain in management’s ability to convert revenue into profit.
Net profit margin crept up from 9.5 per cent in 2019 to 9.8 per cent at the end of 2020. This is the highest net profit margin the bank has seen in six years since 2015. The strength came from the combination of improvement in interest income and a decline in interest expenses.
The improvement in interest income reflects the expansion of earning assets with loans and advances to customers growing by N107 billion to N823 billion in 2020 and investments rising by N167 billion to over N406 billion over the same period.
FCMB grew the size of the balance sheet by N390 billion or 23 per cent to close the year at over N2 trillion – the strongest growth since 2013.
Earnings per share amounted to 98 kobo at the end of the 2020 operations, improving from 87 kobo per share in 2019. The bank is paid a cash dividend of 15 per share against 14 kobo per share paid for 2019 operations.
[…] The Executive Secretary of the commission, Yewande Sadiku, noted that $4.81 billion investment was tracked in the first quarter of 2020, an indication that an increase of $3.59 billion investment accrued in the first three months of this year. […]