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Thursday, March 23, 2023

FCMB More Equipped for Expansion Push

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The contribution of First City Monument Bank (FCMB) to the Nigerian economy cannot be overemphasized as the lender has grown its loan portfolio to both public and private sectors, while it maintains good asset quality.

Of course, it has a well-diversified loan portfolio, as it extended a total of N53.56 billion to the Agric sector in June 2021, which represents 5.50 percent of total loans.

A further breakdown of the total loans shows it disbursed N72.65 billion to commerce; Manufacturing, (N110.41 billion); and real estate, (N101.45 billion.

A major focus of FCMB has been on the Agric business, enhancing mechanised farming, creating jobs and alleviating poverty in a country where over 50 percent of a population live on less than $1.98 a day.

For instance, the lender extended a N20 billion loan to Olam International to bolster its operations and productivity. The Bank also played a significant role in the establishment of the company’s 36,000 metric tonnes (per annum) capacity milled rice facility located in Nasarawa State, thereby contributing to the Federal Government’s goal to achieve riceoutput self-sufficiency.

It is glaring that the small-mid sized bank has been aggressive about lending, one area the central bank is sensitive about.

For instance, FCMB has adequate liquidity to cover loans in the event of an economic downturn even as it extends more credit to the real sector than its peer rivals.

The Tier 2 or mid-sized bank’s loans to deposit ratio stood at 70.0 percent as of June 2021, which is higher than the 65 percent threshold by the regulator.

Most operators in the industry have not met the benchmark yet, as they are refusing to turn on the tap of the lending to an economy recovering from the wrought brought on by the coronavirus pandemic.

For instance, Guaranty Trust Bank, the largest lender by market capitalization, has LDR of 43.20 percent, while, Zenith Bank, Stanbic IBTC, and United Bank for Africa, (UBA), have LDR of 51.90 percent, 56.80 percent, and 43.20 percent respectively.

The loan-to-deposit ratio (LDR) is used to assess a bank’s liquidity by comparing a bank’s total loans to its total deposits for the same period. The LDR is expressed as a percentage. If the ratio is too high, it means that the bank may not have enough liquidity to cover any unforeseen fund requirements. Conversely, if the ratio is too low, the bank may not be earning as much as it could be.

Typically, the ideal loan-to-deposit ratio is 80% to 90%. A loan-to-deposit ratio of 100 percent means a bank loaned one dollar to customers for every dollar received in deposits it received.

To spur growth in the economy, CBN in October 2019 had raised the Loan-to-Deposit Ratio (LDR) of banks to 65 percent, after the September 30 deadline given to the banks to meet the initial target of 60 percent.

The regulator’s policy has yielded as lenders are now turning on the tap of lending to the economy.

Total credit to private sector went up by N498.6 billion in August to N33.26 trillion from N32.8trillion reported in July 2021, according to a latest data from the Apex bank’s Money and Credit Statistics.

A further breakdown of the figure revealed that credit to the private sector in January was N30.65trillion and dropped by 0.47 per cent to N30.5 trillion in February.

Despite the oil price slump and operating environment disruption due to the coronavirus pandemic, FCMB is able to maintain good asset quality.

In short, it has one of the lowest Non-Performing Loans (NPLs) in the banking sector, a rare feat, given the punitive regulatory and macroeconomic environment it operates in.

A nonperforming loan (NPL) is a loan in which the borrower is in default and hasn’t made any scheduled payments of principal or interest for some time.

When NPLs grow or spiral out of proportion due to porous risk management strategy (poor risk management strategy and headwinds, a banking sector crisis is inevitable.

Its NPLs stood at 3.30 percent as at June 2021- an improvement from 3.50 percent in 2020, which is far lower than the 5 percent threshold by the regulator.

Impairment charge on financial asset was down 48.22 percent to N4 billion as at June 2021, from N7.74 billion the previous year.

It must be noted that the relaxation of social distancing measures and gradual roll out of vaccines spurred business activities, strengthened crude oil price, and a lot of valued customers were able to pay up interest on money borrowed.

In 2020, Nigeria, where the oil sector accounts for about 9 percent of economic output but about three-quarters of export revenues and nearly all foreign exchange, also has to deal with record low oil prices, caused by both pandemic and an oil price war between Saudi Arabia and Russia.

In 2021, the Governor, Central Bank of Nigeria (CBN), Godwin Emefiele, said that the sector’s NPLs was at 5.70 per cent in June 2021 compared with 6.4 per cent in June 2020.

Emefiele urged the banks to sustain its tight prudential regime to bring NPLs below the five per cent provident benchmark.

In the second quarter of the year, the economy expanded by 0.51 percent, according to recent data from the National Bureau of Statistics (NBS).

With FCMB’s sustained focus on retail banking, its total deposits increased by 3.98 percent to N3.75 trillion in June 2021 from N3.61 billion the previous year.

However, FCMB has to be wary of the harsh regulatory environment brought on by the hike in the cash reserve ratio by the central bank that has stifled liquidity.

Also, regulatory induce levy like the Asset Management (AMCON) charge has balloon lenders costs on top of inflationary pressures and huge energy bills as electricity from the national grid has been partially unstable.

The largest banks in Africa’s most populous nation have restricted deposit CBN to a tune of N7.17 trillion as at June 2021, according to data gathered by MoneyCentral.

Analysts say the huge amount laying fallow with the regulator is hindering banks from granting more loans to the private sectors, especially small business and manufacturers.

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