FCMB Group Plc is moving from an outstanding finishing last year to yet stronger earnings performance with profit advancing by 85 percent to N9.3 billion in the first quarter. This is accelerating from a top record growth of 56 percent in after-tax profit to N32.6 billion at the end of 2022.
The first quarter unaudited financial report of the N3.1 trillion financial group made up to March 2023 shows that the favourable cost-income balance that produced the earnings leap in the preceding financial year has improved further.
Last year, the bank traded with a combination of an upswing in revenue and cost saving in operating costs but could not contain high-cost increases in interest expenses and loan impairment charges throughout the year.
This year so far, strong revenue growth with moderate operating costs have been retained and loan impairment expenses have shifted from revenue-consuming to cost-saving. This has stretched out the profit margin from 8.9 percent in the first quarter of last year to 10.6 percent in the first quarter that ended March 2023.
As happened last year, there was virtually an all-around improvement in revenue lines in the first quarter, which enabled outstanding growth of 50 percent in gross earnings quarter-on-quarter to N87.4 billion at the end of March. This is a strong acceleration from an increase of almost 33 percent in gross earnings to roughly N282 billion for the 2022 full year.
Leading the outstanding growth in earnings is another revenue that reversed from other losses of about N1.4 billion to a positive figure of N1.8 billion over the review period.
Closely following the revenue growth path is net trading income, which grew by 96.6 percent to stand at N4.9 billion at the end of the first quarter.
Net fee and commission income rose by 54.7 percent year-on-year to N11.8 billion at the end of the first quarter.
Interest income – the main revenue line of the bank, also grew by 41.4 percent to N66 billion, accelerating from the 34.5 percent record of last year that had marked the strongest interest earnings improvement for the bank in many years.
The only revenue line of the bank that went down in the first quarter is low-weight other income which declined from about N255 million to N212 million over the review period.
Reinforcing the gains in revenue are cost savings from loan impairment charges and operating expenses, which improved margins and propelled profit growth.
Net impairment losses on financial assets grew by 24.7 percent quarter-on-quarter during the period to over N5 billion – which is a sharp slowdown from an outstanding growth of 63.7 percent to N25 billion at the end of the 2022 financial year.
Total operating expenses also slowed down relative to revenue at an increase of 28 percent in the first quarter to N34.6 billion. That lowered the operating cost margin from 46.3 percent in the same period last year to 39.6 percent at the end of March 2023.
The cost of funds is the only major cost line of the bank that management has not been able to contain. A high jump of 76 percent in interest expenses in the final quarter of last year has extended to 85 percent in the first quarter to stand at over N34 billion.
Of the increase of N19.4 billion in interest earnings in the first quarter, interest expenses consumed N15.8 billion of it. The incursion limited the increase in net interest income to 12.7 percent to N31.7 billion at the end of the first quarter.
The increase in cost of funds was however more than compensated by both revenue increase and slowdowns in credit losses and operating cost, which explains the gain in profit margin over the review period.
High and accelerating growth in revenue with a gain in profit margin is the critical factor in the outstanding earnings story of FCMB Group for the second year.
The bank earned 47 kobo per share at the end of the first quarter, improving from 26 kobo per share in the same quarter last year.
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