FCMB Group Plc Q1'19 earnings:

Shrinking opex gives earnings boost

29 April 2019

FCMB Group Plc (FCMB) Q1'19 results "" Gross earnings grew by 3.4% QoQ to N43.9 billion, driven by a 24.2% QoQ growth in non-interest income. The growth in non-interest income, in addition to an 11.6% QoQ decline in operating expenses, lifted earnings before tax by 14.8% QoQ to N4.3 billion. However, earnings after tax declined (-1.5% QoQ) on the back of an increase in effective tax rate to 15.8% in Q1'19 compared to 1.5% in Q4'18.

Q1'19 highlights

·     Interest income dipped 5.1% QoQ to N34.4 billion, weighed by the 12.2% decline in returns on loans & advances which masked the 15.8% QoQ growth in income from investment securities. The weakness in interest income is likely related to sustained depletion of the bank's risk assets (FY'18: -2.6% YtD; Q1'19: -2.8% YtD). Consequently, net interest income declined by 3.9% QoQ in Q1'19.  

·     Non-interest income rose by 24.2% QoQ, bolstered by FX gains of N483 million (vs. FX losses of N1.1 billion in Q4'18) and a 34.0% QoQ increase in trading income that was likely driven by the bank's play in the T-bills market. Gains on these fronts overshadowed the impact of a 19.4% QoQ contraction in net fees & commission income on non-interest income. 

·     FCMB recorded credit losses of N2.3 billion in Q1'19 compared to net recoveries of N487 million in Q1'18. Elsewhere, operating expenses dipped by 11.6% QoQ, driving a 12.3ppts drop in cost to income ratio to 75.0% in the review quarter.

·     The bank reported another decline in its loan book (Q1'19: -2.8% YtD; FY'18: -2.6% YtD), which, in conjunction with the decline in other interest earning assets (-12.7% YtD), raises concerns over its capacity for interest income accretion going forward. We will seek clarity from management on both issues in the coming conference call.

·     The Commercial & Retail Banking group remained the key growth driver in Q1'19 after contributing over 72.9% of earnings. Contrariwise, the PBT of the Investment Banking group plunged 94.0% QoQ, due to weak capital market conditions in the periods before and after the elections. We also highlight the impact of reduced PFA fees on the Asset and Wealth Management business, which saw earnings slip 32.0% YoY despite a 22.0% growth in AUM.

Kindly click here for the full report

Regards,