July 30, 2018/ARM Research
FCMB’s H1 2018 analyst and investors conference call will take place tomorrow, 31st July at 15.00 Lagos & London time. For more details, click here
First City Monument Bank Plc (FCMB) published its half-year results at the close of last week showing strong set of results across key line items. EPS of N0.29 was ~90% higher YoY on the back of moderation in funding cost, strong numbers on the non-interest revenue (NIR) line, and substantial decline in loan-loss provision.
For context, despite decline in asset yields (-18bps YoY), moderation in funding cost (-44bps YoY) drove net interest margin (NIM) higher by 23bps YoY to 6.4%. In terms of NIR which increased by 28% YoY, the growth stemmed from Treasury Bills and FX trading income which grew by 126% and 406% YoY respectively.
On loan-loss provision, reflecting recoveries worth N3.2 billion and 93% decline in collective provision, loan loss provision declined by 24% YoY. However, specific provision ran ahead at over double-fold YoY to N8.6 billion.
Trading Income provides support to NIR.
In Q2 18, FCMB reported trading income of N2.2 billion (+23% QoQ) on the back of 123% QoQ increase in income on treasury bills trading of N1.3 billion. However, FX and Bonds trading income declined 36% and 24% QoQ accordingly, to moderate the impact of strong income on treasury bills.
Elsewhere, fee income expanded 7% QoQ supported by strong credit related fees and asset management fees. To our minds, we think the bank is certainly leveraging on synergy from its controlling stake in Legacy Pensions.
Funding cost takes a breather, but for how long?
Interest expense over the quarter declined by 5% QoQ, largely on the back of lower interest on banks (-62% QoQ) and customer deposits (-10% QoQ).
Consequently, funding cost (WACF) printed at 5.9% (-23bps QoQ) to drive a 25bps QoQ expansion in NIM to 8.0%. Importantly, we noted a 243bps decrease in CASA share of total deposit to 67.6%, which does not align with the moderation in interest expense.
Elsewhere, we are staggered at the sizable decline in interest on bank deposits in view of the 140% QoQ increase in deposit from banks. Thus, we will seek clarity from management to ascertain the sustainability of the benign funding cost in the face of an argumentative drive to grow deposit.
Lower provisioning drives notable jump in earnings.
Central to Q2 18 earnings is the sizable decline in loan-loss provision to N2.5 billion (-49% QoQ) reflecting 41% QoQ decline in specific provision to N3.2 billion, and N2.2 billion in recoveries. Consequently, annualized Cost of Risk printed at 1.7% (Q1 18: 3.3%).
However, NPL tracked higher to 5.7% (Q1 18: 5.3%) largely due to the moderation in loan book (-1.7% QoQ). Elsewhere, reflecting higher AMCON charges, operating expenses increased by 11% QoQ to N19.7 billion, to drive higher cost-income ratio (CIR) of 75.7% (Q1 18: 68.6%).
- Net impact of lower provision, benign funding cost and higher NIR drove PBT of N3.8 billion (+18.2% QoQ) and EPS of N0.16 (21.4% QoQ, 118% YoY). Overall, ROE expanded to 3.1% (Q1 18: 2.7%, Q2 17: 2.6%). Capital adequacy ratio of 18% remains contentedly above supervisory limit of 15% and in line with our FY18 estimates.
- Our last communicated FVE on FCMB is N3.38 which translates to a BUY rating on the stock. We will revisit our numbers after further discussion with management.
- H1 2018 analyst and investors conference call: FCMB would be hosting a conference call tomorrow 31 July at 15.00 Lagos & London time. For more details, click here