Focus stragy, market penetration spur Nigeria FCMB to growth as earnings surged

The increased business momentums driven by management’s focus strategy and market penetration have spurred First City Monument Bank to growth given the surge in the Nigeria lender’s earnings.

This means the bank’s interest income on loans and deposits are driving top line while creating risk assets.

For the first six months through June 2015, the bank’s gross earnings increased by 11 percent to N77.35 billion in June 2015 from N69.62 billion the same period of the corresponding year (H1) 2014. Interest income jumped by 15 percent to N63.57 billion in the period under review as against N55.32 billion last year.

Analysts say the FCMB’s impressive results are coming amid regulatory headwinds and tough operating environment bedeviling lenders in Africa largest economy.

The foreign currency trading imposed by the CBN is one of the biggest risks to banks. This policy has squeezed liquidity in the foreign exchange market system, prevented investors from investing in the country’s equity markets.

FCMB

The Abuja based bank applied rules and restrictions to stabilise the naira after it declined to a record low in February as the price of oil, the nation’s major foreign-exchange earner fell by a half in the second half of last year. The central bank has devalued the naira twice since November and prevented banks from buying dollars in the interbank market without matching orders, steadying the exchange rate while reducing liquidity.

The naira has dropped 17 per cent against the dollar in the past six months, the most among 24 currencies tracked by Bloomberg.

The economy is paying the price of foreign exchange restrictions as JPMorgan Chase & Co. expelled Nigeria from its local-currency emerging-market bond indexes.

The implications of the exclusions are that the country’s ability to borrow money to fund capital projects is in jeopardy. In short, banks find it difficult to raise Euro bonds as they used to.

FCMB recorded profit after tax of N8.30 billion in the period, profit before tax stood at N9.50 billion. Operating profit was up by 2 percent to N45.67 billion in June 2015 as against N46.81 billion last year.

“The Group results for H1 2015 reflect a deliberate conservative stance aimed at maintaining robust capital buffers in the face of a tough macro-economic and regulatory environment,” said Ladi Balogun, GMD/CEO, FCMB Limited.

“H1 2015 was characterised by significant macro-economic and policy headwinds,” saying that limited supply of foreign exchange had a major impact on the commercial and retail banking group’s (CRBG) trade finance and foreign exchange trading income,” said Balogun.

Improved customer deposits help boost balance sheet

FCMB aggressiveness to lending is overwhelmingly impressive despite the squeeze in consumer wallets that is crimping retail business in Africa’s most populous nation. The bank also created risk assets while seeking high interest yielding assets.

The bank’s Loans to customers increased by 4 percent to N555.33 billion in June 2015 as against N578.57 billion last year. Total assets spiked by 15 percent to N1.22 trillion in the period under review from N1.06 trillion last year.

“Customer’s confidence in the bank remained strong, as deposits grew 4 percent during the period to N785.8 billion, just as its diversification across commercial and investment banking, and wealth management, provided some cushion as earnings from non-banking activities proved more resilient, the bank said in a statement a note BusinessDay

FCMB’s improved deposit base is coming amid the stringent deposit rules imposed by regulators. These regulations is causing liquidity squeeze in the banking industry. The Central Bank has mandated banks to keep with it 31 percent of their deposits as it seeks to protect the naira from continued bashing caused by a more than 50 percent fall in oil price.

The Abuja based bank had devalued the currency twice since last year while hiking the interest rate to 13 percent from the 12 percent previously held.
The regulator also introduced curbs on currency trading after the naira fell to a record low of 206.32 per dollar on Feb. 12. That’s stabilized the unit at an average of 198.94 since the start of March.

“The harmonisation of the cash reserve requirement to 31 percent led to a significant rise in our restricted reserves and consequently constrained lending and put pressure on net interest margins.

“Asset quality was adversely affected by the effect of declining government revenue on contractors and employees, which saw our NPL ratio climb to 5.2 percent compared to 3.6 percent at the end of FY14. In spite of the inflationary pressures, operating expenses saw a modest rise of five percent in the CRBG, thanks to our ongoing channel optimisation programme.’’ said Balogun.

“Also encouraging is the steady migration of customers towards card-based and digital channel transactions. The business is on a sound footing and is increasingly diversified. The foundations for a strong rebound are in place as the country adapts to a lower oil price environment and we look forward to a more sustainable macro-economic and monetary policy environment’’ balogun added.

FCMB leverages FMDQ to grow N26bn Bond

First City Monument Bank (FCMB) Limited has listed its N26 billion Series 1, 7-Year 14.25 percent Fixed Rate Unsecured Bond on the Financial Market Dealers Quotations (FMDQ) Over-the-Counter (OTC) plc platform. The bond, which is due in the year 2021, is under a 100 billion-debt issuance programme. FCMB Capital Markets Limited, the investment-banking subsidiary of FCMB Group plc, is the issuing house and sponsor of the bond.

The bank informed that proceeds of the bond would be used in strengthening its capital base, enhancing its capital adequacy ratio, expanding its distribution channels and infrastructure as well as growing its risk assets with a view to enhancing income.

“The significance of listing the FCMB bond on the FMDQ platform is hinged on the availability of a readily accessible liquid market to the bondholders, where the value of their investments can easily be determined and monitored on a daily basis. It also provides a platform to realise their investment when necessary, according to Ladi Balogun.

“The bond provides a long term capital that will help us to reinforce our commitment to our customers.” said Balogun.

Tolu Osinibi, executive director, FCMB Capital Markets Limited, said that in a relatively short space of time, FMDQ is clearly demonstrating significant value-add in improving the dynamism, efficiency and sophistication of Nigeria’s growing fixed income market.

The contribution of the FMDQ platform to improving market information, liquidity and transparency is already proven; these are critical success factors to the growth of Nigeria’s capital market.’’

He said that, ‘’as a registered member of FMDQ, FCMB Capital Markets is proud to be part of this journey. We will continue to actively encourage its issuer clients to list their fixed income securities on the FMDQ platform and be part of this market transforming initiative.’’ said Osinibi

The issuing house explained that the decision to list the bond on the platform of FMDQ was to enable bondholders access to a liquid market, where the value of their investments can easily be determined and monitored on a daily basis, as well as provide an opportunity for them to realise their investment when necessary.

Last year, FCMB successfully secured over $300 million medium and long term funding from Development Finance Institutions (DFIs) and international commercial Banks in four different transactions. The proceeds of the facility is being used by the Bafor general lending purposes to
key sectors of the Nigerian economy, branch development as well as channel enhancement.

FCMB has sustained its impressive performance in all areas of operation and service delivery.

These feats have continued to receive accolades. For instance, the Bank has emerged as the 4th most customer-focused bank in Small and Medium Enterprises (SME) with a score of 74.94 percent and 5th in retail banking with 73.16 percent. This is based on the outcome of the 2015 Banking Industry Customer Satisfaction Survey (BICSS) carried out by KPMG, a leading international consulting firm.

Shareholders commend FCMB’s performance in 2014; approve 25k dividend Shareholders of FCMB Group Plc has unanimously approved the payment of a cash dividend of 25 kobo per ordinary share, for the year ended December 31, 2014. The approval came at the 2nd Annual General Meeting (AGM) of FCMB Group Plc held in Lagos on Thursday, April 23, 2015.

Commenting on the development and the financial statements of the Group, the Coordinator of Independent Shareholders Association of Nigeria (ISAN), Sir Sunny Nwosu, commended the Board and Management of FCMB Group Plc for the performance and dividend payment, despite the particularly challenging operating environment for banks in 2014. He added that, ‘’the increase in the Group’s profit from N16b in 2013 to N22b in 2014 is commendable.

It is a clear signal that things are looking up. We are also happy that FCMB has emerged as a strong player in retail banking and from what we have seen so far, we are optimistic that the Bank will continue to wax stronger’’.

On his part, the National Chairman of Shareholders’ Trustees Association of Nigeria, Alhaji Mukhtar Mukhtar, said, ‘’the result is very wonderful, despite the very harsh economic environment.

The FCMB has been able to give us a wonderful result. We are very satisfied. The 25k dividend is very encouraging. Profit after tax has gone up, total assets has increased. We are very impressed with the result. I congratulate the current executive management of the Bank for a job well done’’. On the refreshed corporate identity of FCMB, Alhaji Mukhtar described the move as welcome development that will help the Bank become more visible and connect better with customers.

Speaking at the AGM, the Chairman of FCMB Group, Dr. Jonathan Long, stated that the Group, which comprises First City Monument Bank Limited,
FCMB Capital Markets Limited and CSL Stockbrokers Limited, ‘’has achieved a strong and sustained growth over the past three years’’, adding that during the past year, the Group continued the profitable development of its core banking, capital markets and stock-broking businesses’’. Mr. Long assured that with the implementation of the Group’s supervisory structure, ‘’we are confident that this will help us to consolidate the gains made over the past years and face the economic challenges which we are confronted in 2015’’.

The Managing Director of FCMB Group Plc, Mr. Peter Obaseki, noted that, “the Group is on track to deliver on its promise to its various shareholders’’.

He continued by explaining that the Financial Holding Company structure adopted by FCMB in 2013 has given, ‘’opportunity for us to diversify our revenue sources and minimise our exposure to the risks inherent in some of the businesses in our portfolio of investments’’. Mr. Obaseki stated that despite regulatory and macro-economic challenges, ‘’our future outlook is bright, our capital base remain strong, the bank’s strategies are yielding
results and we will focus more improving contribution to revenue from the non-banking businesses, especially in the wealth management space’’.

Also speaking, the Group Managing Director/Chief Executive of First City Monument Bank Limited, Mr. Ladi Balogun, pointed out that the Bank made considerable progress on the priorities it set out last year, including accelerating market share in retail banking, primarily through consumer finance; enhanced investment in customer experience as a means of growing customer base and containment of operating expense.

‘’Our capital positioned strengthened over the year. We successfully raised N26 billion tier 2 capital which helped us maintain a reasonable capital adequacy ratio, at 19 percent.

We remain well placed to meet expected future growth requirements’’, he said.

Mr. Balogun disclosed that following the Bank’s renewed focus on retail banking, ‘’we acquired 500,000 customers in 2014. We also supported 278,518 borrowing customers during the year with loan disbursements which demonstrates the broad impact we are having on the economy’’. According to him, the Bank also provided greater convenience for its retail customers by rolling out 245 new ATMs, just as it migrated more customers to alternate channels.