Last year appears to be the golden year in the performance of the banking industry in recent time with most of the banks that have released their audited accounts beating all expectations.

For a year that began with several challenges created by both regulatory headwinds and hostile operating environment, the performance of the financial operators has been nothing short of remarkable.

Consistent with the recent trend of earnings result released by banks, FCMB has comfortably weathered the storm around regulatory and macroeconomic hiccups in 2014 to record impressive growth in both top and bottom lines.

In the light of its performance, FCMB announced a final dividend of 25 kobo per share which translates to a dividend yield of 9.0%. For investors, this is a juicy payout as the return is comparable to the industry’s benchmark.

The industry was hard pressed over regulatory activities in 2014, which analysts believed would adversely affect their results but surprisingly deposit money banks have proved adept and nimble in navigating through the landmines.

Beyond Broad Street consensus, banks performances surpass earlier estimates and invalidate initial opinions of the industry’s stakeholders.

In term of customer satisfaction, the bank numbers confirm a growing trend in bank customers retention as many of its customers agreed that the bank’s quality of services has improved.

Obviously, increasing competition that has raised rivalry among operators has forced the bank to be innovative.

“One of my latest discovery in the course of banking industry research reports shows that like some other banks, FCMB is now more flexible, agile and proactive in business relation, customers’ satisfaction and lending activities”, OgochukwuNdubuisi, Marketing/Research Consultant said to Hallmark.

The consultant added; “I think customers banking behaviour has changed compare to years before. Now, banking populace demand high quality services, convenience and recognition.

No bank can be successful at attracting low cost funds without understanding basic needs of its depositors.

Then, I see FCMB adjusting to the trend”.

For most of its shareholders who have waited for this day they must be happy with their investment.

Since the banking crisis of the past few years, investors of the bank had patiently kept faith with the bank to show return on their investment. Fortunately, their waiting has paid off with the current performance.

Its gross earnings and profit before tax (PBT) went up by 13.5% and 31.7% year on year to N148.6 billion and N23.9 billion respectively in financial year 2014.

Similarly, the group’s profit after tax (PAT) came in quite strong at N22.1 billion, which is in line with Afrinvest analysts 2014 projection of N22.1 billion and 38.3% higher than N16.0 billion reported in 2013.

The Bank’s Earnings per ordinary Share (EPS) of N1.12 in 2014 was broadly in line with 2014 EPS forecast of N1.18, but outperformed analysts’ consensus estimate of 90kobo.

A further analysis shows that the Bank’s strong performance in profitability in 2014 was achieved majorly due to the aggressive growth in risk assets that grew by 37.2%.

This bolstered the bank’s Interest Income by up 14.2% to N118.0 billion in 2014, as against a muted growth (-0.3%) in Interest Expense to N45.4 billion.

Consequently, Net Interest Income jumped by 25.7% to N72.6 billion in 2014. Accordingly, the Bank’s Return on Average Assets (RoAA) and Return on Average Equity (RoAE) settled at 2.0% and 14.6% in 2014, representing a 30 basis points and 300 basis points improvement from 11.6% and 1.7% recorded in 2013.

In lieu of the regulatory headwinds within the last two years that have constrained cheap revenue lines of Nigerian banks, FCMB Plc expanded its loan books significantly to earn higher returns on its yielding assets and offset the lower revenue growth prospect in Non-Interest Income (NII) items.

That was the trend among deposit money banks as regulatory hpressures constrained cheap revenue lines in the sector.

To make up for their loss, more risk assets were created.


Hence, Loans & Advances was massively built up by as much as 37.2% from N450.0 billion in 2013 to N618.0 billion in 2014. Also, the bank concurrently reduced investments in short term and liquid instruments such as Cash and Cash equivalent balances, which dropped drastically by 36.8 % and Investment Securities went down by 9.4% to free up liquidity to grow loan books.

On the back of the aggressive loan growth recorded in 2014 which was majorly extended to volatile oil and gas clients representing 23.5% of FCMB’s gross loan book, analysis shows a 33.3% increase in loans impairment charges to N10.6 billion in 2014 from N8.0 billion in 2013.

Subsequently, the Cost of Risk increased to 1.8% in 2014 from 1.4% in 2013, obviously attributed to the recent challenges in the oil & gas sector on the back of significant drop in crude oil prices.

The Bank’s management stated that it had to take pre-emptive measures by increasing loan loss provision in 2014.

Meanwhile, like earlier noted, significant reduction in liquid instruments and aggressive growth in the loan books without a commensurate increase in deposits as deposit moved up marginally by 3.0% to N738.6b, led to the drop in the Bank’s Liquidity Ratio.

FCMB faced with liquidity pressure point but the bank’s liquidity ratio declined from 45.1% in 2013 to 32.3% in 2014, just 2.3% above Central Bank of Nigeria’s regulatory benchmark of 30.0%.

At that level, significant drop in deposit may attract unexpected liquidity trap, albeit in short term but may be gross for the bank to bear. Accordingly, Loan to Deposit ratio expanded simultaneously from 63.0% in 2013 to 83.7% in 2014, slightly above the CBN regulatory cap of 80.0%.

Despite the 19.5% growth in FCMB’s Risk Weighted Assets in 2014 due to the strong growth in gross loan book, the Bank’s Capital Adequacy Ratio (CAR) came in higher at 19.3% in 2014 which is above the 15.0% CBN requirement, from 17.5% in 2013.

The bank buoyed its CAR position with long term borrowed funds from fixed income market.

In 2014, the bank issued N26 billion, 7-year, semi-annual coupon corporate bond at 14.3%. Then, revenue from the bond bolstered its Tier-2 qualifying capital from N12.5m in 2013 to N27.1 billion in 2014.

Afrinvest said by the firm’s estimation, the bank still has the capacity to raise additional N14.4bn in debt qualifying as Tier-2 capital, based on the regulatory requirement which caps Tier-2 capital at 33.3% of Tier-1 capital. Hence, it expects the bank to issue the 2nd tranche from its N100.0 billion debt issuance program to sustain the pace of growth in risk assets.

The firm foresees that the bank’s loan growth may be relatively constrained in 2015 as the bank will require additional deposits to stay within the CBN regulatory maximum limit of 80.0% LD ratio and achieve a substantial growth in loan books.

Analysts concur that FCMB diversified operating business segments and improved revenue growth from the corporate and retail banking segments continued to build the Bank despite the macroeconomic challenges and tight regulatory landscape.

It also shows increasing management maturity and improved leadership capacity of the bank.