FCMB’s Profit Slows Down At Half Year
MICHAEL MOSES
With the recession in its revenue growth, First City Monument Bank [FCMB] closed half year operations for 2019 with profit slowing down from 40 percent growth in the first quarter to 31 percent year-on-year. The slowdown is expected to continue in the second half towards a likely moderate improvement at full year.
There is however a little gain in momentum in the second quarter that has improved full year profit growth expectation from flat to moderate. The bank had raised net profit by 74 percent last year, from which a sharp slowdown is forecast for the current financial year. The bank’s profit growth records follow random up and down turns from year to year.
Inability to grow revenue has been the problem for the bank since 2016 but some strength was added in the second quarter ended June 2019. That has stepped up gross earnings from a 4 percent improvement in the first quarter to a year-on-year increase of 7 percent at half year. The improved growth rate looks likely to follow the bank to full year, indicating good prospects for seeing the best revenue growth record in three years.
Rising interest expenses remain a challenge in the current financial year. A change of direction from a decline in cost of funds last year to growing ahead of interest income was recorded in the first quarter. The development was reinforced in the second quarter with interest expenses accelerating from 6 per cent increase in the first quarter to over 9 percent at the end of June 2019.
A major drop in loan impairment losses on risk assets last year was the big cost saving centre that spurred the big profit lifting in 2018. The loan loss expenses continue to decline so far in the current year but the cost saving isn’t going to be as much as was realised in the preceding years.
Half year operations ended with gross earnings of close to N90 billion for FCMB, an increase of 7 percent year-on-year. This is an accelerated growth from the 4 percent improvement recorded in the first quarter.
Net trading income, that was driving revenue growth as at the end of the first quarter, lost momentum from a 23 percent leap in the first quarter to a 9.5 percent drop at half year. On the other hand, interest and discount income, took over the lead in revenue improvement in the second quarter with an increase of 9.4 percent to N70.4 billion.
Based on the accelerated growth rate in the second quarter, gross earnings outlook for the full year has improved from the earlier indicated flat growth to 7 percent improvement at full year. Gross income is forecast to be in the region of N190 billion for FCMB at the end of 2019. It is therefore expected to step up from 4 percent increase last year to mark the best revenue growth record in three years.
Interest expenses are growing virtually at par with interest income, slightly moderating the incursion into interest income that happened in the first quarter. That enabled net interest income to almost double its growth rate from 5 percent in the first quarter to almost 10 percent to N38.7 billion at the end of half year operations in June 2019.
This is a further strengthening of net interest income from a marginal increase of 2.9 percent at the end of 2018. Net interest income, an equivalent of gross profit, has remained either flat or moderately improved since 2017. It is however likely to grow at the highest rate in five years in 2019.
Net impairment loss on financial assets dropped by 25 percent to N5.5 billion at the end of June 2019. This is a continuing decline for the third year running, having dropped by 38 percent in 2018 and 36 percent in 2017. The lowest loan loss expense for the bank in many years is expected at the end of 2019.
FCMB ended the first quarter with an after tax profit of N7.53 billion, an increase of 31 percent year-on-year. Management continues to keep a tight control over operating cost, which improved net profit margin from 6.8 percent in the same period last year to 8.4 percent at the end of June 2019.
The profit outlook for the bank has improved slightly from the earlier projection of N15 billion to N16 billion for FCMB at the end of 2019. That will be an increase of 7 percent against the earlier forecast of flat growth. The bank has experienced fluctuating growth and slowdown in profit performance for several years and this year so far is set for a slowdown.
The bank earned 38 kobo per share at the end of half year trading in 2019, up from 29 kobo in the same period last year. The full year expectation is 80 kobo per share for the bank in 2019. It closed last year’s operations with earnings per share of 76 kobo and gave out a cash dividend of 14 kobo per share to shareholders.
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