First City Monument Bank (FCMB) Plc in its recently released half year results for the period ended June 2018 showed improvements in profitability, digital banking, and key ratios.
The lender’s risk management strategy has paid off as its cost of risk dropped, thanks to improved recovery and collection across sectors
FCMB’s growing portfolio of digital banking services is responsible for the increase in transaction commission. Its digital banking service is expected to contribute to future profit.
This means shareholders will be rewarded in form of dividend payment.
The lender saw a 1,572 percent y-o-y surge in mobile banking enrolment in the period under review. There were N7.6 billion monthly mobile banking transactions in the second quarter of 2018 as per 1.76 million transaction count.
Mobile banking income increased by 94 percent to N416 million in June 2018 from 214 million the previous year.
FCMB plans to extend its digital lending platform to capture new (non-FCMB) customers in the third quarter of 2018, and it also intends to launch its Digital Savings & Investment Platform in the third quarter.
With an upsurge in profit this quarter, it is expected that the bank will finish the year with strong earnings given the relative liquidity in the foreign exchange market since the central bank introduced the Importers’ and Exports (I and E) window last year.
Digital bankig drives non interest income
FCMB recorded a growth of 8.30 percent in gross earnings to N83.92 billion in June 2018 from N77.50 billion as at June 2017.
Personal Banking, Corporate Banking, and Small and Medium Enterprises (SME) banking were the major drivers of revenue.
A breakdown of top line shows Personal Banking contributed 37 percent to Group revenue, SME Banking, 28; and Corporate Banking, 18 percent.
FCMB’s interest income increased by 3.14 percent to N64.31 billion in June 2018 as against N62.35 billion the previous year, spurred by a 147.63 percent surge in investment in government other securities classified as held for sale and 179.56 percent surge in cash and cash equivalent.
On the other hand, interest expense fell by 2.71 percent to N29.04 billion in the period under review from N29.85 percent the previous year as a result of the combination of a reduction in deposit from bank to N95.91 billion in the period under review and a reduction in borrowings to N4.0 billion from N5.81 billion the previous year.
Robust growth in operating income supported by increase in non interest income
For the first six months through June 2018, operating profit grew by 14.40 percent to N51.30 billion in June 2018 from N45.29 billion as at June 2017, thanks to a 29.70 percent increase in non-interest income to N16.53 billion from N12.79 billion and a 38.10 percent reduction in impairment charge to N5.87 billion from N9.48 billion the previous year.
A breakdown of non interest income shows net fees and commission income increased by 37.80 percent to N9.93 billion in June 2018 from N7.21 billion the previous year while foreign exchange income (FX Income) surged by 123.40 percent to N349.12 billion.
Profit surged despite increase in operating expenses
The bank’s pretax profit surged by 85.80 percent to N7.10 billion in the period under review from N3.82 billion the previous year while profit after tax spiked by 89.26 percent to N5.72 billion from N3.0 billion the previous year.
The growth in profit was largely driven by an increase in operating profit and a reduction in impairment charge that helped offset the increase total operating expense.
Total operating expenses were up 17.90 percent to N37.36 billion in the period under review from N31.70 billion the previous year; driven mainly by an increase in Asset Management Corporation of Nigeria charge (AMCON) and other expenses on alternate channels development.
A breakdown of expenses shows personal expenses were up 4.43 percent to N12.022 billion from N11.51 billion the previous year while other operating expenses rose by 68.85 percent to N9.0 billion in the period under review from N5.33 billion the previous year.
Increase in balance sheet validates good asset quality
FCMB’s total asset increased by 4.40 percent to N1.22 trillion in June 2018 from N1.17 trillion as at June 2017.
The growth in assets was amid a sluggish financial intermediation that saw loans and advances dip by 9.70 percent to N585.98 billion in June 2018 from N649.20 billion the previous year.
Total liabilities increased by 7.32 percent to N1.05 trillion in June 2018 from N997.21 billion the previous year.
The growth in liabilities was driven by a 12.17 percent increase in deposit to N721.28 billion in the period under review from N633.47 billion the previous year.
Notable growth in performacne ratio
FCMB has utilized the resources of its owners in generating higher profit as return on average equity (ROAE) increased to 6.3 percent in June 2018 from 3.40 percent the previous year.
Similarly, return on average asset (ROAA) increase to 1.0 percent in June 2018 from 0.5 percent as at June 2017.
Net interest margin (NIM) moved to 8 percent in June 2018 from 7.60 in 2017 as at June 2017.
The uptick in NIM can be attributed to growth in interest and non interest income as the lender continues to intensify its digital banking strategy with a view to magnifying shareholders’ earnings.
Cost of risk improves to 1.80 percent in the period under review as against 2.80 percent the previous, thanks to risk asset quality, recoveries and impact of IFRS 9 first adoption
Investment banking division profit surges 3571 percent
Investment Banking profit before tax surged by 3571 percent to N273 million in June 2018 from N7 million the previous year, largely driven by CSL Stock broker Limited.
Investment Banking accounted for 4 percent of Group profits in 2Q18 vs 5 percent in 1Q18. Market slowed down during the quarter as investors take caution in trading.
CSLS’ 2Q18 value traded was N70 billion vs N102 billion in 1Q18 and it ended the quarter in fourth-ranked position but third position year to date.
CSLS’ local business (retail and institutional) recorded 35 percent growth in value traded QoQ and 86 percent YoY due to engagement of PFAs and HNIs for portfolio restructuring and increased trading on its online trading platform.
Historical background
First City Monument Bank Ltd. was incorporated as a private limited liability company on 20 April 1982 and granted a banking licence on 11 August 1983. It was the first bank to be established in Nigeria without government or foreign support. On 15 July 2004, FCMB changed its status from a private limited liability company to a public limited liability company and was listed on the Nigerian Stock Exchange (NSE) by introduction on 21 December 2004.
In November 2010, both FinBank and First City Monument Bank (FCMB) announced that FCMB has expressed interest in acquiring shareholding and become the strategic investor in FinBank, another Nigerian commercial bank that was undercapitalized. In February 2012, following regulatory approval, FCMB acquired 100% shareholding and began integration of Finbank in its existing operations.
BALA AUGIE
