FCMB Plc. projects to deliver a profit after tax of ₦3.378 billion in the third quarter of 2021. The group revealed this projection in its earnings guidance released on the Nigerian Exchange (NGX).
According to the document, gross earnings for the period is expected to come at ₦45.882 billion while net income of ₦21.438 billion is projected.
The financial services boutique expects net operating income to settle at ₦30.719 billion in the third quarter of the year, as it proposed to book ₦3.126 billion as impairment charge on credit losses.
On the operational overheads, FCMB projected its expenses for the period to print at ₦23.798 billion –just a little more than half of the group gross earnings for the period.
How FCMB Performed in Q1
While the market awaits the second quarter earnings season, in the first quarter, FCMB profit dipped due to declined income from investment securities.
The group reported a 12% year on year drop in gross earnings to ₦43.2 billion. The decline came as a result of a 14% fall in interest income to ₦33.0 billion. Meanwhile, interest income plunged due to a 60% drop in income from investment securities.
FCMB’s non-interest revenue also fell 6% year on year to ₦10.2 billion, amid an 83% decline in income from T-Bills trading, according to Vetiva Capital.
Analysts said this decline offset gains made in Federal Government of Nigeria bonds and foreign exchange trading, which grew 92% and 124% respectively.
However, the decline in T-bills earnings across both interest and non-interest income lines is directly linked to the low yield environment in the fixed income space, most especially on short-dated papers which have been yielding negative real returns since Q2 of last year, Vetiva Capital said in a report.
FCMB was more positive on the expenses side, as the bank reported a slowdown of 2% year on year increase in operating expenses to ₦25.4 billion, despite a 27% rise in AMCON charges, representing the biggest year on year growth.
On asset quality, FCMB’s impairments charges dropped 51% to ₦1.8 billion, analysts said thanks to a 16% decline in net impairments on loans and a 37% increase in write-backs on previously written-off provisions.
Ultimately, the bank declared pretax profit of ₦4.2 billion which was 22% below the comparable period in 2020. Its profit after tax rest at ₦3.6 billion also representing a 24% decline, yielding an EPS of ₦0.21.
Vetiva Capital hinted that despite reporting a 22% drop decline in interest expense to ₦11.8 billion, FCMB’s net interest margin declined 43 basis points to 6.9% from 7.3% in financial year 2020.
However, it is important to reiterate that the decline in interest income was solely due to weaker yields on investment securities – income from loans and advances actually increased 12% year on year.
“With short-dated securities likely to continue to return low yields in the medium term, we expect this to negatively impact the bank’s NIMs for the rest of the year”, Vetiva said in its equity report.
Taking the numbers forward, analysts at Vetiva Capital forecasted that FCMB net interest margin will print at 7% in 2021 and they expect net interest income of ₦84.9 billion following a downward review from ₦97.9 billion initially expected.
“Whilst we do expect the bank to continue booking FX revaluation gains, we believe the weak return on securities trading is likely to persist for majority of the year”, analysts added.
As a result, the investment firm lower its non-interest revenue forecast to ₦48.9 billion from ₦52.3 billion. Meanwhile, as Nigerian economy continues to recover through the year, analysts said they believe that the bank will report further write-backs on loan losses.
Due to this, the investment firm lower impairment projection to ₦12.8 billion from ₦18.3 billion. These adjustments give a new pretax profit projection of ₦19.7 billion from ₦30.3 billion.
Overall, FCMB profit after tax is expected to print at ₦16.9 billion from ₦26 billion initially projected.
