First City Monument Bank [FCMB] grew profit by 90% at the end of the second quarter, accelerating from 64% in the first quarter.
The performance is despite a continuing weakness in revenue with a slowdown from an increase of about 10% in the first quarter to 8% in the second. The drag is coming from other operating income, which has continued to drop since last year.
Management has maintained a firm hold on costs led by a continuing decline in net impairment loss on financial assets and with that, it has continued to gain profit margin. This seems to be the only option to keep up profit after a sharp drop last year.
The bank closed half year operations with gross earnings of N83.92 billion, an increase of 8.3% year-on-year. Revenue growth needs to step up for the bank to maintain the current growth rate to full year. Gross earnings declined by about 4% to N169.88 billion at the end of last year. The bank is headed for a flat growth in revenue at current growth rate.
Net trading income and Fee and commission income are providing the strength for revenue growth so far in the year. Net trading income advanced by 187% to N3.91 billion year-on-year and fee and commission earnings rose by over 37% at the end of June 2018. A sharp slowdown in interest income from 9.3% in the first quarter to 3% in the second dragged down the overall growth rate in gross earnings.
Effective control on costs remained the management’s strategy in the constrained revenue environment. Interest expenses declined moderately at 2.7% to N29 billion over the review period against the 3% improvement in interest income.
The decline in interest expenses permitted an increase of 8% in net interest income to N35.27 billion at the end of the period. Interest cost, therefore, claimed a reduced share of interest income at the end of half-year at 45.2% compared to 48% in the same period last year.
Progress made in growing low-cost customer deposits in the first quarter was not sustained in the second quarter and inter-bank borrowings continued to advance. This could stand in the way of keeping interest expenses in check.
Customer deposits dropped from N748 billion at the end of the first quarter to N721 billion at the end of half year in June. Due to banks have multiplied five and half times to N35 billion against a 4.5% increase in customer deposits from the closing figures of last year.
Net impairment loss on financial assets remained a cost-saving arena for the bank in the second quarter. Loan loss expenses dropped by 26.5% at the end of half-year operations, accelerating from a slight decline in the first quarter. This is a continuing drop in loan loss charges for the second year after a 36% fall at the end of last year.
The bank is still managing to keep operating costs under a tight control though upward pressures mounted in the second quarter that was led by a 70% rise in other operating expenses to over N9 billion. Despite that, the bank still achieved a 91% leap in operating profit, to N7.1 billion at the end of the half-year, stretching out from71% in the first quarter.
The summary of FCMB’s operating story at the end of half-year trading in June is that it extracted an increased proportion of profit from a naira of its income. With that, it raised net profit margin from 3.9% in the same period last year to 6.8% at the end of June 2018.
The bank posted an after-tax profit of N5.72 billion at the end of half-year operations, an increase of 89.7% year-on-year. Its after-tax profit had dropped by 34% to N9.41 billion by the end of 2017. Based on the growth rate at half-year, the bank can hope to close the year on a turnaround mood.
The bank earned 29 kobo per share at the end of half year, up from 15 kobo in the same period last year. It earned 48 kobo per share at the end of 2017 and paid a cash dividend of 10 kobo per share. FCMB has been consistent with dividend payment since 2013.