FCMB Analytical Report On 2015 Performance

Among the banks that adopted Holding companies in Nigeria’s banking industry, the FCMB Group recently released its 2015 financial score card with the usual smiles and backslapping conspicuously missing at its annual gathering. Our correspondent, CHINYERE OBIORA, examines the Group’s performance during the period under review

Predictably, Nigeria’s banking industry could not do much to insulate itself from the harsh operating environment of 2015 due to falling global oil prices. The resultant drop in government revenue adversely impacted on the economy and operations of quoted companies in the country. Aside the unfriendly macro-economic policies, Nigerian banks operated under pressure with Central Bank of Nigeria (CBN) tightening the monetary policy to ensure stability in the financial system. One such policy is the implementation of Treasury Single Account (TSA), which drained liquidity in the banking environment and impacted on funds available for banking transactions. With subsidiaries in commercial banking, investment banking, capital market, trustee and security agents, FCMB Group ranks among listed companies at the Nigerian Stock Exchange (NSE) that would not forget year 2015 in a hurry. Looking back, the Group, which has First City Monument Bank as one of its subsidiaries, described 2015 as a challenging year. The Bank suffered persistent squeeze on its net interest margin as a result of CBN’s foreign exchange policy as well as marked rise in Cash Reserve Ratio (CRR), which ended with a consolidation of public and private sector CRR to 31 per cent before eventual reduction to 25 per cent. For FCMB Group, the harsh environment operated by the commercial banking subsidiary contributed to its poor performance in 2015. The company’s Profit After Tax fell from N22.133 billion recorded in 2014 to N4.760 billion, representing a drop of N17.373 billion or 78.49 per cent while Profit Before Tax declined by N16.19 billion or 69.9 per cent to N7.684 billion from N23.874 billion reported in the preceding year. Similarly, the net interest income declined from N72.633 billion to N63.936 billion. However, despite its recorded low profit, the Holding company declared total dividend payment of N1.98 billion, which translated into N0.10 kobo per share held by investors. Addressing shareholders at its Annual General Meeting (AGM), Managing Director of FCMB, Mr Ladi Balogun, said activities in 2015 made it quite a challenging year, especially in terms of global oil prices fall; TSA’s implementation with over N2 trillion deposited funds withdrawn from the banking system; greater foreign exchange controls by CBN with its impact on trade and foreign related income. He said the first three quarter of 2015 saw continuous rise in CRR stipulated by CBN and the policy inflicted persistent squeeze on net interest margins. Balogun said net revenue fell by 12 per cent from N96.1 billion in 2014 to N84.9 billion, insisting that this was driven mainly by obvious rise in cost of funds occasioned by hikes in cash reserve requirement. He said despite this disappointing financial performance, the Group’s business strategy of building a retail led commercial bank is still on course as illustrated by strong growth in personal banking revenue in 2015. The growth was driven by 54 per cent growth recorded in card and electronic banking income from N8.6 billion in 2014 to N13.3 billion within the period under review and Balogun said, “We will continue to intensify our retail banking investment drive particularly in alternate channels like ATMs POS and agent banking. We will seek to achieve similar levels of revenue growth as we attained in 2015 and with a focus in alternate channels, cost will remain relatively flat, hence profitability in retail banking will rise significantly.” Due to the credit losses in 2015, the bank made significant changes to credit underwriting standards and intensified loan recovery efforts. With both corporate and SME banking witnessing the highest impairment levels, Balogun said, “We expect to begin seeing a turnaround, with steadily reducing cost of risk in both segment”, adding that “this would be critical to the restoration of profitability in 2016.” Seeing 2016 as another challenging year with anticipated modest improvement in profitability, he said, “the bank has a great foundation to continue to build from and we are confident that our strategy is building the necessary resilience.” Balogun said executing well planned strategies and making meaningful progress in its turnaround plan, the bank will be positioned to attain its medium term performance objectives and create longer term shareholders’ value. In his presentation, Managing Director, FCMB Group, Mr Peter Obaseki said the banking industry, where its portfolio of investment is overweighed, came under sustained stress, thereby slacking total assets growth of 2.3 per cent to N28.1 trillion as at December 2015. Growth in various deposit captions were mixed with average withdrawal of federal government funds from banks in furtherance of TSA implementation. Interestingly, deposits from this source, in local currency dropped by 93 per cent from N764.5 billion to N53.8 billion, and the effect of replacing this outflow was driven up in the cost of funding. Also, time deposit and savings accounts dropped by 4.8 per cent from N11.9 trillion to N11.4 trillion due to continued backlog in salary payments, sluggish economic activities, retail foreign exchange hedging and a gradual build up in inflation spiral. Meanwhile, penalties paid to regulators for rules violations by FCMB and CLS Stock broker were N177.097 million and N2.96 million respectively, bringing the Group’s total fines to N180.06 million in 2015. National Coordinator, Independent Shareholders Association of Nigeria (ISAN), Sir Sony Nwosu frowned that fines on subsidiaries impacted negatively on the company’s profit. However, on his 2016 projection, Chairman of FCMB Group, Dr Jonathan Long, said it is likely to face significant headwinds, adding that some problems experienced in 2015 have not gone away because oil prices still remain low; government finances overstretched; consumers under pressure; while manufacturing activity generally faces considerable difficulties.