FCMB staggers under huge weight of non-performing loans

Nigeria’s tier two bank, FCMB, is putting much effort at digging itself out of a huge pile of non-performing loans which currently stands at N71.9 billion.As at the end of September 2019, the bank reported that it had provided for the sum of N7.8 billion as impaired loans for its financial year. 
By this time last year, it was N14.6 billion, so a near 50 per cent improvement will always be welcomed.since 2016, the bank has recorded a total impaired loan of about 71.9 billion, with 2016 being the highest with about N35.7 billion. 

The balance sheet mending efforts have recorded relative successes, especially in a harsh economic environment.
The bank’s capital adequacy ratios are 17.9 per cent higher than the regulatory required 15 per cent. Liquidity ratio is also at 39.8 per cent and the loan to deposit ratio at 73.9 per cent (CBN loan to funding ratio is 57.36 per cent).
Whilst the bank contends with weeding off non-performing loans, several aspects of its balance sheet and indices remain underwhelming. 

A cursory review of its much-awaited 2019 9 month’s results shows just how poor its financial ratios are. 
The bank’s cost to income ratio of 75.4 per cent is one of the worst in the industry. It’s either it aggressively reduces its bloated overheads or grows income faster and more robustly. 
The former is perhaps a more plausible route. Return on average equity was a mere 5.8 per cent at a period when big players in the industry are raking in double-digit returns on equity. Its 2019 9 months results also performed worse than in the same period in 2018, with pre-tax profits down 13.3 per cent. 

The bank blames exceptional items as the reason for the profit decline.
“Our year on year growth has faced a few setbacks due to the non-recurrence of exceptional gains from FX income, regulatory induced fee reductions in the pensions business and a continued lull in the capital markets.
”In 2014, FCMB’s profit after tax was N22.1 billion. It went down to N8.6 billion in 2017 and increased to N14.9 billion at the end of 2018. It will unlikely beat its 2018 performance, continuing with the inconsistency that has besieged its bottom line since 2014.

Despite some of the transformations currently being recorded in the bank, success and consistency seem to be eluding it. Its share price is down 29 per cent in the last one year and still 48 per cent down from its 2018 high of N3.51. If shareholders aren’t rewarded by capital appreciation, surely its intrinsic value should get some joy via consistently improving results.
Last week, FCMB closed the week as one of the worst losers, shedding 9.45 per cent of its value. Investors, who had waited weeks for its 9 months quarterly results had a bone or two to pick with the tier 2 bank.

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