FCMB Plc: Improved profitability parameters
Introduction
FCMB Plc mostly recorded an improvement over the preceding year’s results in terms of turnover and profit, and this improvement carried over to its profit. As a result, the bank recorded better profitability ratios than that of the prior year. Profit margin, return on assets, return on equity, and other important profitability parameters improved.
However, the bank did not compete too favourably when its results are compared with its competitors’ results.
Growth indices
A look at the bank’s growth indices over the past two years shows that the bank recorded consistent growth. For its 2023 financial year also, the bank recorded an 82.6 percent increase in its turnover (inclusive of interest and discount income, and income from non-banking operations). Such turnover grew to N516.8 billion from N282.9 billion in the preceding year. This 82.6 percent growth rate is as compared to a lower 33.5 percent growth rate that was achieved in 2022.
Pre-tax profit growth rate followed an even steeper pattern, as the bank recorded a much higher profit in the year under review. Profit before tax for the year stood at N104.43 billion as compared to a profit before tax of N36.57 billion in the prior year. This translates to a 185.6 percent growth rate.
After tax profit for the year was also a steep growth over the after-tax profit of the preceding year, growing to a whopping N93.02 billion from a profit of N31.12 billion in the erstwhile year.
Total assets deployed by the bank for the 2023 year was N4.41 trillion, about 47.9 percent higher than the N2.98 trillion assets deployed in 2022, while shareholders’ funds grew to a figure of N460.7 billion. Growth rate of equity for the year was therefore 67.0 percent, as such shareholders funds grew from a figure of N275.9 billion in the erstwhile year.
Profitability ratios
The 2023 financial year was a progressive one for FCMB in terms of profitability ratios, as it recorded an improvement in almost all of its profitability ratios. First to achieve a progression was the profit margin of the company. For the year, the bank had a profit margin of 20.2 percent in 2023, up from a profit margin of 12.9 percent in 2022. What this means is that for every N100 earned by the bank in the course of the year, N20.20 accrued to it as a profit. This is as compared to a profit of N12.90 and a profit of N10.70 in the two years preceding 2023.
Also to record a progression was return on assets (ROA). ROA for the year stood at 2.4 percent in 2023, as compared to 1.2 percent in 2022. This means that the bank made a pre-tax profit of N2.40 from every N100 worth of assets deployed for the 2023 review year, as compared to a profit of N1.20 in 2022.
As for return on equity (ROE) for the 2023 financial year, FCMB made an after-tax profit of N20.20 for every N100 worth of equity employed, higher and better than the profit of N11.30 made in 2022.
FCMB did not do as well in the execution of core banking operations in 2023 as it did in 2022, as shown by its net interest margin, which slowed down to 49.9 percent. This 49.9 percent net interest margin is as compared to a higher 55.6 percent net interest margin in the preceding year. This result came to be despite the slightly increasing gap between the bank’s lending rate (which grew to 19.4 percent in 2023 from 18.4 percent in 2022) and its deposit rate (which also increased to 5.3 percent in 2023 from 4.7 percent in 2022).
Classified loans
FCMB’s proportion of classified loans (to gross loans and advances) was high and worse compared to competitors.
Asset quality
The proportion of FCMB’s gross loan stock that became classified in 2023 declined by growing to 4.3 percent from 3.9 percent in 2022. The proportion of classified loans is still low enough to be considered safe.
Meanwhile, the bank’s cover for such classified loans was a very high 109.7 percent, meaning that the bank had complete cover for its bad loans. It is also worthy of note that such classified loans would erode around 18.2 percent of the bank’s equity were they to become totally bad and irrecoverable. This is about the same level as it was in the prior year.
Other ratios
At 0.2 times, current ratio was very low and definitely not on par with the industry average for 2023. What this means is that for every N1.00 of short-term obligations, the bank had only 20 kobo in short-term assets, and was not completely able to meet short term debts from short term assets.
A debt-to-equity ratio of 8.6 means that the bank is leaning more on debt to finance operations rather than equity, but less so than it did in 2022. The upside is that when debt is managed properly, the returns are usually good.
Conclusion
FCMB’s result for the year cannot in and of itself be faulted. The bank, however, has a little bit more work to do to compete well against other banks.
