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Owing to the rising default in loan repayment forced by the COVID-19 pandemic and the declining economy that affected borrowers’ revenue inflow, First City Monument Bank (FCMB) faced an upsurge in credit loss expenses in the third quarter 0f 2020 but its management waded through the strain and maintained the elevated profit performance it demonstrated at half-year.

The situation which affected lenders globally also forced the bank’s net loan impairment expenses to rise to N5.6 billion, quarter-on-quarter, in the third quarter ended September 2020. This pushed up the year-to-date loan loss expenses to more than N13 billion, jerking up the year-on-year rise from 41 per cent at half-year to over 70 per cent at the end of the period.

The resumption of new lending in 2019 after two years of break, occasioned by the Loan to Deposit Ratio (LDR) policy of the Central Bank of Nigeria (CBN), appears to be fuelling the rising asset losses. Last year, the bank grew the customer credit portfolio by 13 per cent and further growth of close to 11 per cent had happened at the end of the third quarter to N793 billion.

The bank’s management was not letting the asset quality strain to impede the impressive growth record of the bottom line. Instead, it gained speed on profit growth from the half-year position to 30 per cent, year-on-year, at the end of the third quarter. FCMB maintained the path of growing profit for the third consecutive year though it remained well below the peak profit figure of N22 billion attained in 2014.

The bank maintained its earnings growth levers on the upbeat, spurred by a step up in interest earnings from 8 per cent growth at half year to 10 per cent increase, year-on-year, to N112 billion at the end of the third quarter. This was punctured by non-interest income, which shrank from 13 per cent increase at half-year to close to flat at N34 billion at the end of September 2020.

Nevertheless, FCMB saw the highest growth rate in revenue in four years in the 2020 financial year. Interest income grew at the highest rate since 2014. At over N146 billion at the end of the third quarter, gross earnings improved by 7.8 per cent year-on-year, slowing down from over 9 per cent improvement at half-year. This was the best revenue growth record for the bank in four years against a slight decline in 2019.

Interest cost extended its benign behaviour in the third quarter with a year-on-year decline stepping up from 3 per cent at half-year to roughly 4 per cent to close at N44 billion at the end of the third quarter. Improving interest income with declining interest expenses were the favourable combination for FCMB in 2020. The share of interest income devoted to interest expenses went down from 45 per cent to 39 per cent over the review period. The positive effect is a top record growth of 21 per cent in net interest income to N66 billion at the end of the third quarter compared to less than 5 per cent improvement at the end of 2019.

The major increase in impairment loss on financial assets however did not let all the increase in net interest income get down into profit. Net loan impairment expenses rose by 70 per cent to over N13 billion at the end of September 2020. The expenses claimed nearly 20 per cent of net interest income against 14 per cent in the same period in 2019.

With the strength of improving revenue and declining interest expenses, FCMB was able to dilute the impact of rising credit loss expenses and still added some momentum to the bottom line.  The bank closed the third quarter with an after-tax profit of roughly N14 billion, which represents a year-on-year growth of 30 per cent – stepping up from 29 per cent record at half-year.

Profit was accelerating in 2020 from 16 per cent growth the bank recorded at the end of 2019. The ability to grow profit more than three times the revenue underscored a gain in profit margin in 2020. Net profit margin improved from 7.9 per cent a year earlier to 9.5 per cent at the end of Q3 2020. This is the highest net profit margin the bank has seen since 2015. The strength came from cost saving from interest expenses and a moderated operating cost during the review period.

The improvement in interest income reflects the expansion of earning assets with loans and advances growing by N77 billion over the 2019 closing figure of N715 billion and investments rising by N64 billion to over N303 billion over the same period. Over the first nine months of 2020, FCMB grew the size of its balance sheet by N369 billion, or 22 per cent, to close at over N2 trillion – the strongest growth since 2012. Earnings per share amounted to 70 kobo at the end of the third quarter operations, improving from 54 kobo per share in the same period in 2019.

The bank remains on track with our full-year expectation that it would retain the key strengths of growing revenue, moderating interest expenses and improving profit margin and stay the course of rebuilding profit for the third straight year in 2020.