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 FCMB’s Half Year Profitability Momentum Raises Bigger Hope for 2022    

The financial year 2022, indeed, is heavily loaded with promises of better value for the entire stakeholders of First  City Monument Bank ,FCMB. Its first half year profitability is ,no doubt ,sustaining the first quarter impressive order of magnitude profitability; the expectation of analysts and investors is  that  if the momentum could be sustained in the second half of the year ,it is going to be a celebration galore for the bank at the end of the 2022 financial year

 A look at the bank’s fundamentals in the first and second quarters of 2022 created a springboard for this hope . It recorded   an impressive 42% increase in profit before tax at the end of March 2022, a significant jump to N6 billion from the N4.2 billion recorded in the same period in 2021. Also, profit after tax was up by 45% Year-on-Year to N5.2 billion from N3.6 billion in 2021. This brilliant performance was sustained in the second half of 2022 with greater momentum of profitability; it leveraged the first quarter results with supersonic jump in its profitability in its half year results. Its profit before minimum tax and income tax grew by 73.2% Year-on-Year to  N15 .43b from N8.91b recorded in the corresponding period of 2021  while its profit  after tax grew by 81% to N13.66b from N7.56b in 2021 .

 Looking at the bank’s first quarter critically ,its pre tax and post tax results were closer to what were registered in the whole first half of 2021 ; the indication is that its ability to repeat this in the second half of 2022 will break the jinx of its inability to beat the peak profit figure of N22 billion attained as far back as 2014;these are the glimpses of what is possible within the bank which has the vision of attaining the status .

 Investors are already marking the bank for better value creation in 2022. Their logic is right .One of the good ways  they determine value coming to their investments is by Earning Per Share (EPS), which is the monetary share value, or what every share issued by the bank will receive from declared earnings. The higher the EPS, the more profitable the bank is .The positive impact of FCMB’s improved profitability is palpable on its earnings per share that grew by 81.5% to 69k from 38k  .

Net profit margin which illustrates how much of each naira in revenue collected by a company translates into profit. or how much net income is generated as a percentage of revenues received also confirms the bank’s improved profitability  This ratio hit 10.8% compared to 8% in the corresponding half year period of 2021.

 Its ability to grow its profitability that consequently led to improved EPS and net profit margin could be traced to stronger revenue in the first half of 2022. The six-month results showed a significant leap in gross revenue by 34%   to ₦126.2billion from ₦94.2billion for the same period prior year. This was driven by a 35.0% growth in interest income and a 30.5% growth in non-interest income. Digital banking continues to gain traction across its  various businesses and now accounts for 13.6% of gross earnings  .This remains the best revenue growth record for the bank in five years.

The strategic capability that delivered the above inspiring results could be traced to the company’s  resources and competencies .The bank’s  total assets increased by 18.3% Year-on-Year from ₦2.2 trillion to ₦2.7 trillion in June 2022;  its total equity rose slightly by 3.7% to N252.89b   from N243.81b  while its customer deposits grew by 22.3% Year-on-Year from ₦1.3 trillion to ₦1.6 trillion in June 2022.

But the possession of resources does not guarantee strategic success  as  strategic capability is essentially concerned with how these resources are deployed, managed, controlled, and in the case of people motivated to create competencies in those activities and business processes needed to run the business.  Sequel to the above facts kudos should be given to the management of FCMB for the ongoing turnaround; people are at the heart of strategy .The knowledge and experience of  this management are key factors enabling the success of strategies that delivered the inspiring results   Moreover, competencies are created when resources are deployed into separate activities of the organization and into the processes through which these activities are linked together. So competence is about the activities of an organization and the processes that link activities together within and beyond the organization  

 The dexterity displayed by the management in tackling the core banking hard-nut to make that contribution to the gross revenue possible is highly impressive  Loans and advances deployed by the management grew by 22.3% Year-on-Year from ₦916.7 billion to ₦1.1 trillion in June 2022.

First is the bank’s capability for managing the interest rate risk that is usually  driven by the maturity structure of the loan book, as well as the match (or mismatch) between the maturity of the loans against the maturity of the funding  Though its interest expense increased by 27.8% N37.92b from N29.67b its net interest income grew by 40% to N60.17b fromN43b in 2021 to prove that the rising interest expense could not tame the interest income which rose at a greater speed .A further proof to this feat is that FCMB expended only N38.70k to generate N100 interest income from its earning assets in 2022 as against N40.80k in 2021

Interest and discount income ,NII,  which is  sensitive to both credit risk and market risk.   hit  N98.09b from N 72.67b as its digital banking continued to gain traction across its  various businesses and  accounted for  9.3% of that  interest income in the  period under review .The improving interest income at a greater speed  at 35% compared to interest expenses 27%  are the favorable combination for FCMB in 2022  ,.This was driven by a growth in the yield on earning assets from 9.9% to 10.9% which led to an increase in Net Interest Margin that  measures the profit a company makes on its investing activities as a percentage of total investing assets. from 7.0% to 7.2%.

 However , a  major increase in impairment loss on financial assets did not let all the increase in net interest income get down into profit. Net loan impairment expenses rose by 166.7%  to N10.70b from N4.01b  at the end of June 2021 . The expenses claimed nearly 11per cent of net interest income against 5.5 per cent in the same period last year.

But the bank’s bottom line was rescued by non interest income segment which witnessed a 30.5% growth . Fee income, a component of this non  interest  income segment which is  less volatile and not susceptible to market risk like trading income or NII contributed  73.7%   or  N17.00b of the total noninterest income of N23.07b.Beyond the above advantage ,in fee income there is also no credit risk because the fees are often paid up front; there are other benefits as well, such as the opportunity to build up a diversified customer base for this   additional range of services. These are what the management of FCMB exploited to beef up itself for better profitability and to douse the fire from high loan impairment profile   .  

Though fees and commissions contributed the largest share to the non interest income in an absolute term the bank’s exploit from  its  trading income  increased by 132%   to N6.13b from N2.64b  as another driver of the profitability   

What usually punctures the hope of better bottom line of FCMB  was the bank’s high rate or  size operating cost .  However this is has been tamed drastically in the first half of 2022 ;while its operating expenses grew 19.1% Year-on-Year to ₦57.1 billion in the first six months of 2022, largely due to increased regulatory costs, technology related costs and general inflationary pressures , it  was tamed this time around ..

The management of this bank was able to manage this cost handle down with its cost to income in the period under review standing at 68.6% compared to 78.8% in the corresponding period of 2021

This is the secret of the giant leap in the bank’s Profit before minimum tax and income tax  at N15.43b compared to N8.91b, or 73% growth .After the taxman has collected his own portion FCMB still gathered 81%increase in profit as it hits N13.66b  from N7.56b  . With the strength of improving revenue, managing down the upward speed of interest expenses and taming its cost to income rate , FCMB was able to dilute the impact of rising credit loss expenses and  this  added  some momentum to the bottom line.

That FCMB is seeing the highest growth rate in revenue in four years in the current financial year may not spring any surprise going by the ingenuity and creativity of its management which led to  solid growth across all businesses supported this performance

The bank itself is not hiding its jokers .  It  attributed the success to its ability to leverage its unique group structure to enable a technology-driven ecosystem of platforms, customers, partners, talent, and capital to contribute to the sustainable and inclusive growth of the communities it serves  ; in spite of the challenging domestic and global environment, FCMB Group said it  is well positioned to sustain the performance trend in financial and non-financial metrics.

The bank has embarked some climate actions to reduce its bills. According to the bank it  transitioned 8 branches from grid/diesel generators to solar power in H1 2022, taking the number of branches running on renewable energy to 150 (i.e., 73% of total branches) as at June 30th

 It also  provided N6.3 billion loans to over 52,000 MSMEs at an average ticket size of ₦99,000, 77% of which were women. “Our focus on financial inclusion and MSMEs have been further bolstered by a $17.3 million funding partnership with Mastercard Foundation to provide affordable loans to 100,000 MSMEs over the next 5 years with a focus on 90% participation by women, the bank declared .

It stated that  it contributed to food security and import substitution in Nigeria by growing its  lending to the agricultural sector from ₦53.6 billion in H1 2021 to ₦87.9 billion in H1 2022, a net disbursement of ₦34.3 billion over the last one year which represents 16.5% of our total loan growth over the period

Furthermore , the management said  the bank  acquired over 900,000 customers in the period including 250,000 customers from our PFA acquisition, compared to 400,000 in H1 2021, adding that its customer base crossed the 10 million mark in H1 2022.

One area where FCMB has outperformed others is in d igital Transformation .In d digital retail lending space the bank claimed over    442,000 loans, totaling ₦21.0 billion  disbursed to over 171,000 individuals, were accessed, underwritten, and disbursed via our digital channels in H1 2022 ; in digital   SME lending, over r 12,000 loans, totaling ₦93.4 billion disbursed were accessed, underwritten, and disbursed via our digital channels in H1 2022 while it  enabled more than 60,000 customers to access high yield investment products via digital channels, and growing AUM in its  digital wealth propositions by ₦5.2 billion in H1 2022. Its digital payments, wealth, and lending have  continued to empower a greater number of  its customers resulting in a 50.8% growth in digital revenues from ₦11.5 billion in H1 2021 to ₦17.3 billion in H1 2022.

 In H1 2022,the bank claimed it  completed the integration of FCMB pensions and AIICO Pensions, growing its AUM in the Pension industry by 61.2% to ₦618.0 billion. “We also initiated our digitally enabled micro-pension proposition via agent networks, which will enable us extend our reach to the informal sector of the economy. We view the growth of long-term domestic savings as an important catalyst to the growth and development of our economy”, .

Finally , FCMB Capital Markets raised and advised on investments in Nigerian public and private sector totaling ₦294billion in the first 6 months of 2022, compared to ₦264billion in H1 2021.

.First City Monument Bank Limited, the flagship company, has over 9 million customers and 206 branches in Nigeria and a banking subsidiary in the United Kingdom through FCMB Bank (UK) Limited (which is authorized by the Prudential Regulation Authority (PRA) and regulated by the Financial Conduct Authority (FCA) and the PRA in the United Kingdom).

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