In order to strengthen its capital adequacy ratio, FCMB Group Plc plans to further deleverage its balance sheet as it plans to complete Tier II bond raising of at least N7.5 billion, Peter Obaseki, Managing Director, FCMB Group Plc told investors and analysts last Friday following its released third-quarter (Q3) results.
FCMB had said in August it will raise between N10 to N15 billion of Tier II capital, targeting retail investors for the offering.
FCMB Group Plc is the holding firm with subsidiaries including First City Monument Bank (FCMB) Limited, FCMB Capital Markets Limited, CSL Stockbrokers Limited and CSL Trustees Limited.
Quarter-on-Quarter (QoQ), FCMB Group Capital Adequacy Ratio rose from 16.1% in Q2’16 to 17.6% in Q3’16; it was 18.5% in Q1’16. But Year-on-Year (yoy), its Capital Adequacy Ratio declined by 4.1% from 18.3% in nine month 2015 to 17.6% in nine months 2016.
In the third-quarter unaudited results for the nine months ended September 30, 2016 FCMB Group gross revenue of N140.7 billion indicated 29% increase from N109.3 billion for the same period prior year.
Its profit before tax (PBT) rose to N14.2billion, representing an impressive increase by 453% from N2.563 billion recorded in the comparative period of 2015.
The Group also recorded Non-interest income of N44.8 billion which is an increase of 128% Year-on-Year (YoY), from N19.6 billion for the same period prior year. This increase has been predicated on a 612% YoY increase in FX income, from N5.0 billion for the nine-months ended September 2015, to N35.3 billion for the nine-months ended September 2016.
The group’s returns contracted in Q3’16 due to spike in cost of risk albeit. Non Performing Loan (NPL) improved quarter-on-quarter (QoQ) driven by loans write-off during the quarter.
“Performance improved year-on-year (YoY) due to significant FX revaluation gains during the year, while liquidity and capital adequacy ratio (CAR) improved QoQ”, Kayode Adewuyi, Chief Financial Officer, FCMB Group Plc told analysts.
PBT declined QoQ due to significant impairments, reduced non interest income and high cost of funds in Q3’16 but was cushioned by a N9billion from Q2’16 FX gains buffer, however, PBT grew YoY driven largely by revaluation gains during the year.
“The macroeconomic headwinds remain challenging and constraining, the outlook for Q4 is therefore conservative and subdued. We revise our earlier guidance on cost of risk upward by 300 basis points as a result of significant increase in provisions under collective impairment.
“The underlying momentum in Retail and Transaction banking will be intensified, as these growth areas are relatively immune from the headwinds. We will continue with our cost optimisation programme; intensify the growth trajectory around our wealth management business,”Obaseki said.
Ladi Balogun, GMD/CEO, FCMB Limited said, in the corporate space, the bank’s more capital efficient product focus –that is transaction banking as opposed to lending –shift away from structured finance to balance sheet lending has continued to yield dividends with low cost deposits growing by over 25% to N87.1b in the corporate bank space year-to-date (YtD). “We expect further corporate banking loan reduction in 2017”, Balogun said.
He noted that intense loan recovery effort has been hampered by illiquid secondary market for collateral. “Hence we have only seen an achievement of about 47percent (N2.8billion) of planned full year recovery as at Q3’16. Further write backs will occur as asset sales are concluded,” the bank CEO added.
On the bank’s credit outlook, Toyin Olaiya, Chief Risk Officer/Divisional Head, Risk Management said “we will maintain our cautious loan growth strategy with specific focus on lower ticket loans in Agriculture, Retail and high quality SMEs.”
“Risk asset volume is estimated to decline in Q4 with tightened risk acceptance criteria, as pay-downs surpass fresh origination. Asset quality is a top priority and we will maintain high provision level to ensure adequate coverage ratio for non-performing loans. Exposures in challenged sectors will continue to be proactively managed and monitored to ensure performance and efficiency,” she said.
The group’s investment banking earnings dropped both QoQ and YoY, “driven by weak revenues, due to lull in the capital markets,” said Tolu Osinibi Executive Director, FCMB Capital Markets Limited.