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FCMB GROUP PLC FY'20 - Gains in Non-Interest income boost profits 13% y/y

FCMB recently released its audited FY’20 earnings, reporting a 2% y/y increase in Gross Earnings to ₦199 billion (Vetiva: ₦195 billion). The earnings beat was the result of a 10% y/y growth in Interest Income to ₦151 billion (Vetiva: ₦149 billion) and an 11% y/y growth in Non-Interest Income to ₦48 billion (Vetiva: ₦46 billion). Furthermore, the bank’s Net-Interest Income grew 19% on the back of a 2% y/y decline in Interest Expenses to ₦60 billion, which came as a result of a 27% decline in interest paid on consumer deposits. On the other hand, loan loss provisions soared in 2020, jumping 62% y/y to ₦22 billion (Vetiva: ₦18 billion). Notably, 40% of this final sum, about ₦9 billion was recorded in Q4 alone, a trend we have noticed across a few of our coverage banks. Other costs also increased significantly, expanding Opex 11% y/y to ₦95 billion (Vetiva: ₦97 billion); this was however due to a weaker base in 2019, wherein the bank reported a ~₦7 billion write-back on a provision for litigation. Overall, this led to the bank reporting a 9% y/y improvement in PBT to ₦22 billion, and a 13% y/y increase in PAT to ₦20 billion. This yielded an EPS of ₦0.98 while management proposed a final dividend of ₦0.15/share (FY’19: ₦0.14), representing a pay-out ratio of 15.3% (FY’19: 16.1%).

Loan book expansion bodes well for Interest Income growth While FCMB’s Loan book grew 15% y/y to ₦870 billion, the bank’s Non-Performing Loan (NPL) growth was tame, increasing 2.4% y/y to settle at ₦28 billion, giving the bank an NPL ratio of 3.3% (FY’19: ₦3.7%). Significantly, the bank grew term loans by 18% y/y, while cutting overdrafts by 17% in the same period. Although income from loans and advances improved, Net Interest Margin (NIM) worsened to 6% from 6.5% in FY’19. However, this could be somewhat attributed to the significant growth in interest earning assets over the period, as well as the efforts of the CBN to lower borrowing costs. Looking forward, we expect the bank to continue to grow loans and advances, thus we forecast a 10% y/y growth in gross loans to ₦956 billion (Previous: ₦925 billion), while the continued drive for cheaper lending will drive NIM lower to 5%. Overall, we forecast a mild 3% y/y growth in Interest Income to ₦156 billion, while the recovery of yields in the FI market, coupled with higher competition for deposits should push interest expenses up 4% y/y to ₦63 billion.