First City Monument Bank (FCMB) Plc, a second tier Nigerian lender has surmounted the punitive regulatory environment, coronavirus, and low yields as it posted an increase in fourth-quarter profit buoyed by a jump in income from non-lending business including fees for services.
The results would be a relief to investors who had thought that the lender was going to capitulate to a myriad of challenges bedeviling the industry.
For the year ended December 2021, FCMB’s net income rose by 6.52 percent to N20.89 billion from N19.61 billion as at December 2020.
MoneyCentral’s analysis showed profits were N17.33 billion in 2019, N14.97 billion in 2018, N9.41 billion in 2017, and N14.33 billion in 2016.
The growth in profit was largely driven by a 42.84 percent increase in fees and commission income to N27.93 billion in the period under review from N19.55 billion the previous year.
Despite a low yield environment brought on by the central bank’s dovish stance, FCMB Group saw interest income on loans and advances increase by 7 percent to N161.58 billion as at December 2021.
The regulator’s decision to bar individuals and domestic firms from both its primary and secondary Open Market Operations (OMO) auctions sent net treasury yields crashing.
Interestingly, FCMB is good at generating returns on the investment it received from its shareholders as return on equity moved to 8.66 percent in December 2021 from 8.63 percent the previous year.
A cursory examination of the financial statement showed impairment on financial assets otherwise known as loan loss expense dipped by 29.33 percent to N7.49 billion, thanks to the gradual reopening of the economy that paved the way for customers to pay interest on money borrowed.
The lender has been investing significantly in digital channels, and analysts are sanguine that it will continue to look to Non-Interest Revenue to enhance earnings despite stiff competition from Fintechs and Telcos.
Between 2014 and 2019, Nigeria’s bustling fintech scene raised more than $600 million in funding, attracting 25 percent ($122 million) of the $491.6 million raised by African tech startups in 2019 alone—second only to Kenya, which attracted $149 million, according to a report by McKinsey and Company.
It is noteworthy that FCMB Group is thriving in the face of a challenging operating environment as the cash reserve ratio debit by the central bank continues to place road blocks to the sector’s path.
“We also expect an increase in funding costs as banks have begun to reprice deposits to reflect current market realities,” said analysts at CSL Stock Brokers Limited in a recent note to clients.
Analysts at CSL Stock Brokers are of the conviction that Nigerian banks will continue to struggle to improve efficiency to support bottom line as they forecast sub inflationary growth in opex in 2022e.
So, FCMB Group total operating expenses were up 25.65 percent to N105.98 billion as at December 2021 from N84.34 billion the previous year.
In its last Monetary Policy Committee Meeting, the central bank retained the cash reserve ratio at 27.50 percent, and held the monetary policy rate at 11.50 percent as it was convinced that loosening the rates would trigger liquidity surfeit and fuel inflationary pressure as available funds might outstrip the economy absorptive capacity or domestic capacity utilisation.
However, market participants have said that the country’s CRR, which is one of the highest in the world, weakens the financial performance sector.
Already, banks are grappling with regulatory costs such as the Asset Management charge and National Deposit Insurance Corporation levy, while the minimum loans to deposit ratio could stoke rising non-performing loans since they are forced to extend credit to risky sectors.