Business Journal

Banking

FCMB May Shut 36 Branches to Save Cost

FCMB

There are growing indications that First City Monument Bank Plc [FCMB] may shut 36 of its branches nationwide as part of strategic cost reduction measures to remain afloat in the market in 2O16.

A senior management officer in FCMB told Business Journal that the bank is assessing various internal policy measures to reduce its high operating costs in the face of dwindling fortunes in banking business and the larger Nigerian economy.

The officer said: “The bank is looking at plans to reduce its branch network nationwide by 36 due to high operating costs and reduced earnings. The management is looking at a leaner but more efficient financial institution going forward.”

Just recently, Afrinvest Research released its report on the bank’s latest financials. The report read in part:
“First City Monument Bank Group Plc [FCMB] released its 9M: 2015 earnings result last Friday, 29th January, three months after its due date.

The result was largely disappointing as gross earnings grew 2.4% to N109.3bn (weaker than our projection of 9.6%) while PBT fell 84.7% Y-o-Y to N2.6bn and annualised EPS settled at N0.49 relative to our FY:2015 projection of N1.05.

The deviation in top line growth relative to our forecast was due to the mild 4.1% Y-o-Y growth recorded in interest earning assets from N857.5bn in FY:2014 to N892.6bn in Q3:2015.

Loans contracted 8.5% YTD to N568.3bn leading to constrained 3.0% growth in Interest income. Interest expense however grew faster by 9.3%, resulting in a higher cost of fund (5.6% from 5.2% in FY: 2014) and a 0.8% Y-o-Y decline in Net Interest Income to N48.7bn.

Investment and other operating income also weakened by 4.1% to N19.6bn, which the Group’s management attributed to regulatory and macro-economic headwinds which had led to a lull in capital market activities and pressured earnings performance of its investment banking unit (which contributed 5.6% to FY: 2014 PBT).

We however attribute much of this to weaker income from FX transactions and lower COT regime affecting trading and commission revenue already exhibited in its H2:2015 result.

The significant drop in PBT was driven by impairment charges on the loan book (up 290.7% Y-o-Y to N15.3bn) of its commercial banking unit and a higher operating cost.

The impact of both weighed on the Group’s Cost of Risk (annualised) and Cost to Income ratios which rose to 3.7% (Vs. 1.7% in FY: 2014) and 71.5% (Vs 68.5% Q3:2014), also higher than our FY: 2015 forecasts of 1.7% and 66.0% respectively.”

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