FCMB’s Profit To Slow Down In 2019?
MICHAEL MOSES
Following the slowdown to flat growth indicated in the earnings of First City Monument Bank [FCMB] in the first quarter of 2019, its profit for the current year may not come close to the 74 percent posted in 2018.
FCMB has got profit growing for the second year in 2019 but the revenue constraint observed in 2018 is still in place and a moderate improvement of 4 percent in gross income in the first quarter is at par with the full year record in 2018.
This year, rising interest expenses is a key factor in slowing down profit growth as there is a change of direction from a decline in cost of
funds last year to rising interest expenses.
In 2018, interest expenses declined well ahead of interest income, which has changed to growing ahead of interest income at 6 percent compared to 5 percent this year. This permitted only a moderate improvement in net interest income at the end of the first quarter.
Another major factor impacting this year’s performance is impairment expenses on risk assets. Loan impairment expenses are still declining as they did in the preceding year but that isn’t going to afford the bank as much cost savings as 2018.
The bank made a big turnaround in the 2018 financial year, raising profit a clear 74 percent to a four- year peak at roughly N15 billion. It was a rebound from a 34 percent profit drop in the preceding year and all eyes have been on FCMB to see if it will sustain the profit improvement for the second year, even at a reduced momentum in 2019.
It closed first quarter operations with gross earnings of N43.90 billion, just 4 percent up year-on-year. As was the case last year, net trading income is leading revenue growth at an increase of 23 percent.
The income line saw an upsurge of 158 percent in 2018. The drag is the principal income line –interest and discount income, which has not seen a reasonable improvement since 2015. Based on the first quarter growth rate, gross earnings could close flat for FCMB at full year.
The bank closed the 2018 full year operations with gross earnings of N177.25 billion, an increase of 4.3 percent year-on-year, improving from a drop of 3.7 percent in the preceding year. An increase of 22 percent in transactions income accounted exclusively for the improvement in gross
earnings in the year. This year however, the fee-based earnings are slowing down.
Moving against a decline of 4.4 percent in interest expenses last year, interest cost grew by 6 percent year-on-year at the end of the first quarter to N15.88 billion, making a slight incursion into interest income at 46 percent and reversing a reduced claim at below 45 percent of interest income in 2018.
The increasing pressure from interest expenses limited the increase in net interest income at 5 percent to N18.62 billion at the end of the first quarter. A decline in interest expenses last year enabled the bank’s management to moderate the constraint in interest income. This year, the improvement in interest income has helped to step up net interest income from 2.9 percent at the end of 2018 to 5 percent.
Net interest income – net revenue from the core business of the bank, has remained either flat or moderately improved for the third year running. This is an industry wide trend for banks, showing that significant improvement in profit in recent years isn’t coming from any
improvements in earnings from the core business.
One of the high points of the bank’s performance last year is a drop in net loan loss expenses.
Net impairment loss on financial assets dropped for the second year in 2018 by 38% to a little over N14 billion, sustaining a drop of 36% in 2017. It was the lowest loan loss expense for the bank in four years, proving substantial cost saving that powered the strong growth in profit
recorded in the year.
A major strength for profit improvement in the first quarter is again coming from a sustaining drop in loan impairment expenses, which dropped by 53 percent year-on-year to N2.3 billion at the end of March 2019. The outlook indicates that the drop in credit loss expenses would be
maintained to full year, providing a cost saving centre for the bank for yet another year.
FCMB ended the first quarter with an after tax profit of N3.62 billion, an increase of 40 percent year- on-year. Management kept a tight control over operating cost, which permitted all the cost savings from loan impairment expenses to flow into the bottom line. This is redressing last
year’s development when operating cost grew by 14 percent – the highest growth rate in four years.
The outlook indicates a full year after tax profit in the region of N15 billion for FCMB at the end of 2019. That will be flat on the slightly below N15 billion closing profit the bank posted in 2018.
The bank has experienced a pattern of rise and fall in profit performance since it lost 78.5 percent of net profit in 2015 and this has made FCMB a watch candidate this year as to whether it will see a brake of the rise and fall pattern in profit performance.
The bank saw the highest profit figure in four years at the end of 2018, penning a recovery from a 40 percent drop in after tax profit to N8.6 billion in 2017. The enhanced profit figure in 2018 still stands well below the historic peak of over N22 billion the bank reported in 2014.
FCMB extracted an increased proportion of profit from the naira of its revenue at the end of the first quarter than it did in the same period in 2018. It raised net profit margin from 6.1% to 8.2 percent over the period, though inching down from the closing net profit margin of 8.4 percent in 2018.
The bank earned 18 kobo per share at the end of the first quarter of 2019, up from 13 kobo in the same period last year. It closed the 2018 operations with earnings per share of 76 kobo and a cash dividend of 14 kobo per share, showing consistency with dividend payment
since 2013.
At the end of the first quarter of 2019, the bank reported a balance sheet size of N1.4 trillion and a customer credit portfolio of N615 billion. The figures reflect reductions in the key earning assets of customer credit and investments by 2.8 percent and 15 percent respectively. The closing figures also show marginal increases in customer deposits at N832 billion and equity resources at N188 billion.
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