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FCMB GROUP PLC 9M'19 Earnings - Growth in costs outweighs earnings improvement

Profits decline y/y despite Gross Earnings growth

FCMB released 9M’19 earnings on Friday, reporting a 2% y/y increase in Gross Earnings to ₦135.8 billion, in line with our estimate. The bank also posted a 6% y/y gain in Net Interest Income to ₦56.2 billion (Vetiva estimate: ₦57.0 billion). However, Non-Interest Income came in 9% lower y/y at ₦34.0 billion (Vetiva estimate: ₦30.6 billion), driven by an 86% y/y slump in FX trading income to ₦260 million.  Meanwhile, Operating Expenses grew 14% y/y to ₦69.6 billion (Vetiva estimate: ₦65.4 billion), driven by a 19% y/y increase in staff costs to ₦21.6 billion and a 7% increase in Administrative Expenses to ₦23.4 billion. On a more positive note, the bank recorded a 46% y/y decline in impairment charges to ₦7.9 billion (Vetiva estimate: ₦8.5 billion); however, the increased costs across the other lines led to a 13% y/y fall in PBT to ₦12.8 billion (Our estimate: ₦13.8 billion) and a PAT of ₦10.8 billion, down 5% y/y.

Weak Q3 performance drags profits

While Q3 has historically been the bank’s weakest period for earnings, the bank’s Q3’19 underperformance was more acute than in previous years. Most notably, Net Interest Income fell 12% q/q to ₦17.6 billion as a result of a 21% q/q decline in income from Loans and Advances, despite a 3% q/q growth in Loans (the bank’s LDR currently stands at 73.9%) and a 13% moderation in Interest Expense to ₦13.8 billion. However, the bank did record a 48% improvement q/q in Non-Interest Income, buoyed by an extraordinary income of ₦4.8 billion; a provision for litigation that was no longer required during the period. Despite this, faster than expected expansion of costs marred the bank’s positive Non-Interest Income performance, as Opex grew 16% q/q to ₦25.9 billion, a reflection of a 63% q/q growth in other operating costs to ₦5.4 billion, dragging PBT 12% lower q/q to ₦4.0 billion.