FCMB’s Pre-tax profit surges by 193% in Q1 2024

FCMB’s Pre-tax profit surges by 193% in Q1 2024

FCMB Group Plc released its unaudited financial results for Q1 2024, revealing a pre-tax profit of N31.344 billion, marking a significant 193% increase year-on-year

This result is on the back of persistent macroeconomic challenges, including elevated inflation, interest rates, and exchange rate volatility, which have led businesses and consumers to grapple with escalating costs of goods and services.

Consequently, this scenario has resulted in elevated interest expenses for companies and heightened loan impairments for banks.

Key highlights (Q1 2024 v. Q1 2023):

Gross Earnings: N179.056 billion +104.79% YoY
Interest Income: N125.388 billion +89.85% YoY
Interest Expense: N70.004 billion +104.02% YoY
Net interest income; N55.384 billion +74.54% YoY
Impairment charges: N23.710 billion +360.69% YoY
Net fees and commission income: N11.915 billion +1.12% YoY
Net Foreign exchange gain: N26.785 billion +1,359.98% YoY
Profit after tax: N28.770 billion +209.61% YoY
Basic EPS: N5.81 +209.04% YoY
Cash and cash equivalent: N704.288 billion +21.60%
Loan and advances: N2.215 trillion +20.29%
Total Assets: N5.227 trillion +18.16%
Customers deposit: N3.267 trillion +5.98%
A cursory review of the results reveals that a combination of robust growth in interest income, driven significantly by lending activities, and substantial gains from foreign exchange transactions contributed to the group’s strong profitability during the period under review.

The group’s interest income surged by 89.85% year-on-year to reach N125.388 billion, with interest income from loans and advances to customers playing a pivotal role, constituting 62% of the total interest income.

In addition, the net foreign exchange gain increased by 1,359.98% year-on-year to N26.785 billion.

The growth in interest income appears to be driven by a combination of expansion in loan portfolio and a rise in interest rates.

Notably, the group’s loans and advances to customers, a key contributing factor, expanded by 20.29% to reach N2.2 trillion. Moreover, the benchmark interest rate experienced a substantial 875 basis point increase, climbing from 16% in Q1 2023 to 24.75% in Q1 2024.
This uptick likely played a role in the noteworthy growth observed in interest income derived from cash and cash equivalents, as well as loans and advances to customers.
Potentially stemming from the expansion of its loan portfolio and the increase in interest rates, FCMB disclosed an impairment loss of N23.710 billion and N23.963 billion allocated to the allowance for impairment on loans and advances to customers.
The significant impairment charge, which represents about 43% of the group’s net interest income, suggests that a substantial portion of the bank’s earnings is being set aside to cover potential losses from likely non-performing loans.
However, despite the impact of the impairment charge, FCMB’s trajectory of profitability growth remains promising, offering investors a compelling opportunity. In fact, the group’s Q1 profit surpasses both its Q1 and Q2 2024 forecasts.

However, the bank faces the additional hurdle of meeting the Central Bank of Nigeria’s (CBN) new capital requirement, which seems to have unnerved investors, contributing to the decline in the share prices of banking stocks.