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FCMB GROUP PLC FY'19 Earnings - ₦6.5 billion write-back boosts FY’19 PAT

FCMB released its audited FY’19 earnings on Monday, reporting a 2% y/y increase in Gross Earnings to ₦181.3 billion (Vetiva estimate (₦184.2 billion). The bank also posted a 5% y/y gain in Net Interest Income to ₦79.9 billion (Vetiva estimate: ₦73.3 billion), while Net Interest Margin worsened 0.6% y/y top 6.5%. However, Non-Interest Income came in 4% lower y/y at ₦43.8 billion (Vetiva estimate: ₦46.0 billion), driven by an 89% y/y fall in FX trading income to ₦297 million. Meanwhile, the bank was able to tame Operating Expenses, which remained flat y/y at ₦85.9 billion (Vetiva estimate: ₦91.2 billion), despite a 14% y/y increase in staff costs to ₦29.6 billion; this was due to a 6% decline in Other Operating expenses to ₦56.3 billion, driven by a ₦6.5 billion non-recurrent writeback. Furthermore, the bank recorded a 3% y/y decline in impairment charges to ₦13.7 billion (Vetiva estimate: ₦10.0 billion). Ultimately, the savings across these income lines led to a 9% y/y growth in PBT to ₦20.1 billion (Vetiva estimate: ₦18.1 billion) and a PAT of ₦17.3 billion, a 16% y/y growth, giving an EPS of ₦0.87.

 

Loan-book growth falls short of LDR requirements

The bank recorded a 27% y/y and 12% q/q growth in Loan-book in Q4’19, in compliance with the CBN’s LDR directive, which boosted Interest Income 4% y/y. Despite this, the bank was unable to meet the minimum requirement, with an LDR of 59% which we do not expect to improve significantly in FY’20 due to the current economic reality. The bank grew deposits 26% y/y to ₦1.0 trillion. Furthermore, a 4% increase in Interest Expense was mainly driven by a 32% increase in interest paid on borrowings and an 82% jump in Interest paid on Interbank deposits. Going forward, we do not expect the bank to repeat this remarkable loan growth in 2020; thus, we forecast a mild 1% growth in Loans and advances to ₦761.9 billion. We also expect a moderation in Interest Income to ₦134.5 due to the current interest rate realities. Furthermore, the impact of COVID-19 is likely to increase the rate of loan defaults, worsening our projection for the bank’s NPLs to 4.7% (FY’19: 3.7%).