FCMB’s declining FX income weakens Q3 earnings

Declining foreign exchange earnings which has been the basis of growing income by key deposit money banks, including FCMB Holdings Plc, has sustained a depressive trend weakening projected earnings as reflected in the group’s third quarter 2017 result recently released.

The Holding company’s marked y/y growth in earnings in its third quarter result for the period ended 30th September 2017, was driven by positive base effects on the provisions line which was -87 per cent lower on a y/y basis.

Daily Times Nigeria recalls that FCMB’s Q3 2016 results were weighed down by an 82 per cent y/y rise in loan loss provisions to N21.0billion, mainly due to exposures to the oil and gas downstream sector.

However, the reduction in provisions in Q3 2017, more than offset the weakness in pre-provision profit which declined by -35 per cent y/y. Of the two revenue lines, the non-interest income line which fell by -69 per cent y/y was primarily responsible for the y/y decline in pre-provision profit. The growth in funding income was subdued at 5 per cent y/y.

Earnings performance from FCMB Holding for the nine months period in 2017 reflected weakness, as shareholders continue to monitor trends and the future of their investment.
The company’s results for consecutive quarters, Q1 to Q3 ended 30th September, 2017, which cross section of analyst have tagged unimpressive has been attributed to the sustained drop in foreign exchange revaluation for the period under review.

For instance gross earnings dropped by 15.57 percent to N118.81bn as against N140.72bn in third quarter of 2016. Despite the decline in impairment charge for the period, the significant drop in foreign exchange revaluation gain was large enough to dampen the company’s profits as profit before tax dropped significantly by 51.74 per cent to N6.84bn against N14.17bn in third quarter of 2016.
The result further showed that Profit after tax dropped by 57.87 per cent as the company’s tax rate grew to 20.06 per cent against 8.43 per cent that was reported in third quarter of 2016. Interest income stood at N96.27bn against N93.23bn in 2016, representing an increase of 3.26 per cent.

The company’s Non-Performing Loans (NPL) ratio stood at 4.7 per cent, while its capital adequacy ratio remains above Central Bank of Nigeria (CBN) requirement at 17.4 per cent.