First City Monument Bank Nigeria Plc’s risk management strategy has paid off as the Nigerian lender’s Non Performing Loans (NPLs) reduced amid a volatile and tough macroeconomic environment.
For the first three months through March 2017, FCMB’s NPLs reduced to 4.30 percent from 4.80 percent the previous year.
NPLs distributed by sector was N29.52 billion in the period under review, representing a 6.33 percent increase from N29.52 billion recorded the previous year; driven by a 15.9 percent growth in NPL QoQ largely from Manufacturing, Individual and Commerce Sector.
It is not an easy task maintaining good assets quality in a deteriorating macroeconomic environment as Nigerian banks booked higher than expected impairment charge on loans made to the energy and commercial business.
Banks lent to oil companies when oil prices were above $100 3 years ago on the expected that assets acquired by these firms would generate reasonable cash flows.
However, a sudden drop in commodity prices sent a predawn chill down the spine of bank managers as a lot of the loans became a huge liabilities.
It is estimated that lenders lent a total of $10 billion to local oil and gas companies to buy assets from Royal Dutch Shell, Eni and Total.
A severe dollar shortage that led to an economy recession hammered manufacturers and business from importing raw material and machinery.
The economic downturn squeezed banks as they valued customers were unable to pay back interest loans borrowed.
The ratio of non-performing loans to total credit rose to 14 percent at the end of December from 5.3 percent at the end of 2015, the Abuja-based Central Bank of Nigeria, which requires banks keep the measure below 5 percent, said in a report on its website.
Moody’s Investors Service said NPLs will rise marginally to between 14 per cent and 16 per cent, “but should reach a peak as write-offs, loan restructurings, and the strengthening economy take effect,” said Moody’s.
For the first three months through March 2017, Impairment charge by the 13 largest listed lenders on the Nigerian Stock Exchange (NSE) increased by 54.23 percent to N96.27 billion from N62.39 billion the previous year.
A 125.56 percent surge in loan loss expense deal a hash blow on First Bank, the largest lender in the country by assets as net come dropped 22.36 per cent to N16.88 billion.
First Bank’s Non-Performing Loans (NPLs) of 26.50 per cent, which is one of the highest in the industry, exceeds the 5.0 per cent regulatory threshold.
FCMB’s total gross loans by sector increased by 17.86 percent to N682.17 billion in the period under review from N578.75 billion the previous year. Loans to oil and gas upstream and services constitute 24.410 percent of total gross loans by sector. A total of N165.30 billion loans were granted to the oil and gas sector.
FCMB defiled all odds as its gross earnings rose by 11.93 percent to N38.46 billion in March 2017 from N34.36 billion; due to growth in non Interest income. Non-interest income moved to N7.29 billion in March 2017 from N4.72 billion as at June 2016; driven by transaction income, trading income and recoveries of previously written off assets.
The Nigerian lender was efficient as total operating expenses fell by 1.63 percent to N16.23 billion in March 2017 compared with N16.50 billion the previous year as the bank continues to benefit from ongoing automation investments and cost optimisation activities.
Similarly, cost to income ratio increased fell to 69.80 percent in the period under review from 69.80 percent as at March 2016, which means the bank has been able to cut costs while bolstering profit.
“YoY decline in staff and operating costs was mainly attributable to continued cost discipline, effects of automation and alternate channels migration and streamlined branch network, said the bank in a statement.
FCMB’s net income dropped slightly by 3.65 percent to N1.58 billion in March 2017 as against N1.64 billion as at March 2016.
The Nigerian lender’s deposits to customers was up 4.50 percent to N687.21 billion in June 2017 from N657.60 billion the previous year; due to strategic drive for low cost deposit growth.
The Bank’s total assets stood at N1.17 trillion as at March 2017 while shareholders fund was N178.87 billion the same date.
“Continuous initiatives to further optimise the balance sheet necessitated the drive for low cost funding while exiting the interbank funding market and expensive deposits,” said the bank.
