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FCMB Group: Effective Management of Operating Expenses Drive profit, Returns to Shareholders

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FCMB Group plc. audited result and accounts for financial year ended December 31, 2019 showed impressive performance as the management reduced its operating expenses which eventually boost profits.

The financial institution recorded growth from top-bottom line that translated into dividend payout to shareholders.

Despite the low yield environment, during the period, the Group was able to improve on its interest and discount income that impacted positively on Net Interest Income.

With double-digit growth in profit, the management of FCMB Group proposed a final dividend of N0.14 per share for every 50 kobo ordinary share, payable to shareholders this week.

The Group’s audited results for the period under review shows a stable performance in balance sheets position as customer deposits and gross loans advance by 14.7 per cent and 13.1 per cent respectively, to drive total assets to N1.67 trillion in 2019.

The solid financial performance for the period ended December 31, 2019 affirms FCMB Group’s as one of the leading banks in terms of profits, resilience and consistency in achieving its strategic objectives despite the challenging business environment.

The 2019 results revealed a number of positive performance as the management continued to create value for shareholders and transform businesses.

Reduction in OPEX drive profit

FCMB Group’s for the period under review reported 2.3 per cent increase in gross earnings to N181.2billion in 2019 from N177.1billion reported in 2018.

The Group interest income also increased by 4.4 per cent to N137billion in 2019 from N131.66 billion in 2018, over increasing interest generated from investment in securities that closed 2019 at N16.4billion from N12.39 billion reported in 2018, while investment securities at FVOCI moved from N16billion to N18.04billion reported in 2019. 

 Also, interest expense grew by four per cent to N61.47billion in 2019 from N59.09billion reported in 2018, attributable to higher borrowing rate and interest expenses on lease liabilities.

Continuing the trend during the year, Net interest Income was stronger in 2019, gaining 4.7 per cent to N75.98billion in 2019 from N72.57billion in 2018. Non-interest income thus dropped by 16.9 per cent to N32.85billion in 2019 from N39.55billion reported in 2018.

The breakdown in Non-Interest income showed that net fees & commission dropped by 4.1 per cent to N20.7billion in 2019 from N21.6billion reported in 2018 while trade income gained 11.5 per cent to N6.9billion in 2019 from N6.19billion reported in 2018. Also, Foreign exchange income stood at N3.55billion in 2019, about 62 per cent decline from N9.3billion reported in 2018. Others Non Interest Income dipped by 30.8 per cent to N1.67billion in 2019 from N2.4billion reported in 2018.

On the cost side, Operating Expenses (Opex) dropped by 2.9 per cent to N76.9 billion, as against N79.22 billion in 2018, well below average inflation rate within the period, a reflection of cost efficiency gains.

Consequent on the muted Opex growth relative to operating income growth, cost-to-income ratio settled lower at 69.4per cent relative to 70.7per cent in the prior year.

Notwithstanding the challenging business environment in Nigeria, the Bank’s Profit Before Tax was impressive at N20.13 billion, compared to N18.44 billion at the end of the 2018 financial year.

Furthermore, the Profit After Tax rose by 15.8 per cent to N17.34 billion in 2019 compared to N14.97 billion recorded in 2018.

 

With growth in profits, FCMB Group’s Return on Average Equity (RoAE) closed 2019 at nine per cent; compared to 8.1 per cent in 2018, while Return on Average Assets moved from 1.1 per cent to -2.1per cent in 2019.

Stronger assets amid CBN 65% lending policy

The Group closed the year with 16.6 per cent increase in total assets to N1.67trillion from N1.43 trillion in 2018 following a impressive performance in gross loans and advances to customers and customers deposits.

The Central Bank of Nigeria (CBN) had mandated commercial banks to lend 65 per cent of the deposit to support real sectors of the economy and FCMB Group last year did a loans of about N715.9billion, 13.1 per cent increase over N633 billion reported in 2018.

FCMB Group’s Customers’ deposits also rose by 14.7per cent to N943.1 billion in 2019 from N821.7 billion reported in 2018.

This reflects increased customer confidence, enhanced customer experience, early wins from the ongoing business transformation programme and the deepening of its retail banking franchise.

Furthermore, FCMB Group’s total equity rose by 28.3 per cent to N403.1 billion in 2019 from N314.3 billion reported in 2018. The financial institution continued to maintain a disciplined and prudent approach to loan growth in line with its Risk Management framework.

Despite the macro-economic challenges, alongside CBN’s monetary tightening policy which constraints most banks income generation and resulting in high cost of funds within the financial system, FCMB Group has outperformed beyond general expectation.

The financial institution prospect last year was to drive for low cost and appropriately mixed deposit base to fund credit and money market transactions.

At 18.47 per cent Capital Adequacy Ratio (CAR) has increased and is above regulatory threshold of 15 per cent, in spite of the 13 per cent loan growth. Liquidity ratio reduced largely because of a 42 per cent increase in restricted funds, leading to a CRR of 31.2 per cent at the end of 2019.

However, the diversification of customer was strengthening across the group companies, gaining 27 per cent from 5.5 million as at 2018 to 7 million as at 2019. Personal and business banking account for 72 per cent, 29 per cent and 70 per cent of deposits, assets and gross income respectively.

Non-banking activities account for nine per cent of PBT, largely driven by pensions business. The group investment Management business saw a 28 per cent growth in AUM from N314.3 billion to N403.1billion, as the management continued to leverage an effective distribution model on the bank’s growing customer base.

Management Plans this year

The management of FCMB group plans to accelerate the digital transformation of personal & business banking which will improve scale, profitability and customer experience. In response to the twin challenges of a global pandemic and a sustained drop in oil prices, the financial institution has developed a comprehensive response to keep employees and customers safe, business going and support those affected by this pandemic.

 

Also, the management plans to alter its working practices in the longer term to reduce its carbon footprint and improve employee satisfaction through remote working.

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