Mr Adam Nuru said the lender has made considerable progress in its journey to deliver sustainable income growth, improvements and diversification in revenue streams.
Without doubt, 2017 was a glowing year for the FCMB Limited as the bank recorded an impressive results despite the harsh operating environment.
While narrating how the bank continued to improve on its performance at its last Annual General Meeting, its Managing Director, Mr Adam Nuru, said the lender has made considerable progress in its journey to deliver sustainable income growth, improvements and diversification in revenue streams.
”Our micro lending business Credit Direct Limited (CDL) recovered from the 2016 decline in revenue driven by local macro-economic impact on its customers’ ability to meet debt obligations to record a 65 per cent growth in profit before tax from N1.3billion in 2016 to N2.2 billion in 2017.
The improvement was driven by the realignment of the Subsidiary’s business model and an aggressive recovery posture which will be sustained in 2018,” he added.
On the outlook of the bank for the rest of the year, he said “we expect that continuous improvement in our operating environment will definitely serve as the pivot of our growth.”
It is an honour to be chosen to steer the affairs of this great institution and I have subsequently assumed the responsibility with all sense of dedication. Last year (2017) commenced on a very intriguing note, with the economy still grappling with the challenges of Nigeria’s first recession in over 25 years. Key economic indices did not abate, most notably of which included high inflation rate, low crude prices and a volatile foreign exchange (FX) market, as well as policy collision, as regulators implemented a myriad of guidelines to address the economic challenges.
The banking industry was not exempted from all these, as it witnessed significant deterioration in its income lines and asset quality, alongside persistent low market liquidity which further heightened funding costs. This situation persisted for most of part of first half of 2017, but eased up in the second half of the year, with a turnaround that gained momentum for the rest of the year.
Inflation dropped to 15.4 per cent by December 2017 from a high of 18.7 per cent in January 2017. The CBN also introduced the Investors and Exporters FX window which has contributed to a relatively stable foreign exchange market. In addition, global improvement in crude prices stimulated a growth in external reserves, giving investors the much needed confidence to reconsider the viability of the Nigerian market.
However, the effects of these economic improvements were hardly felt in the real sector, which further heightened the challenges faced by the banking industry.
Notwithstanding these limitations, the Commercial and Retail Banking Group (CRBG) delivered a Profit Before Tax of N9.5 billion for the year, a 31 per cent contraction from N13.8 billion reported in the 2016 financial year. While this may seem below par, I am pleased to announce that we have made considerable progress in our journey to deliver sustainable income growth, improvements and diversification in our revenue streams, alongside moderations in operating expense and impairments growth are at the core of our new business model which we shall continue to implement in the current year.
The CRBG’s performance was driven by the marginal increase in net interest income, despite an industry wide muted loan growth in 2017. Fees and commissions also recovered from the knock off effect of FX-related income in 2016 and improved by 7.6 per cent to N14.5 billion in 2017. This was in spite of the regulatory cap on fees in the year. We mitigated the impact of this cap on our revenue stream by increasing the volume of transacting customers, issuing almost a million cards to our customers in 2017 and leveraging technology to improve operating efficiency.
The CRBG’s revenue performance declined through a 52 per cent reduction in other income because of minimal revaluation gains in 2017. There was a 70 per cent decline in revaluation surplus from N24.4 billion in 2016 to N8.4 billion in 2017. However, to cushion this effect, we have positioned ourselves to aggressively explore new markets, mainly around the youth segment, women in business, the creative industries and most definitely, the sphere of agriculture to build additional revenue streams going forward.
We continued to contain our overhead cost, which increased marginally by 4 per cent from N63.4 billion in 2016 to N66 billion despite the double digit inflation rate that characterised the year 2017. We hope to maintain this moderate cost-conscious posture in 2018 and beyond.
Balance sheet size remained flat, growing marginally by 0.5 per cent in 2017, with loans and advances following the same trend and declining by 2 per cent to N649 billion in 2017. This is as the bank continues to manage its exposure, with focus on high quality assets to improve loan book quality, while also pursuing conscious growth in promising sectors to optimise resource allocation. Deposits on the other hand grew by 4 per cent, driven majorly by about 10 per cent growth in savings deposits from N139 billion in 2016 to N153 billion in 2017, a modest outcome of our renewed focus on low cost funding options to reduce our balance sheet cost.
On a segment basis, the bank recorded commendable improvements across the key revenue earning units. Our Small to Medium Enterprise (SME) business recorded a 24.7 per cent improvement in its net revenue, driven majorly by improvements in its interest income and about 30 per cent growth in fees and commission. We deployed additional 5,000 point-of-sale (PoS) machines within the year to bring the number of active PoS machines to about 14,000. We also launched a new SME mobile banking app to enhance alternate channels adoption among customers in the business segment.
Our Corporate Banking business recorded a 41.4 per cent per cent increase in net revenue on the back of its renewed liability and transaction driven approach, growing its low cost deposit volume by about 20 per cent.
Our Personal Banking business on the other hand recorded a 5.1 per cent decline in net revenue, due mainly to increased funding cost which we were unable to pass on to our customers and the proactive decision to scale back on consumer loans in a bid to manage the impact of delayed salary payments by state governments on our loan book. This impact was, however, cushioned by improved business volumes in other products, reduction in our cost of risk and aggressive recoveries during the year, resulting in about 22 per cent growth in PBT from N7.4billion in 2016 to N9.1billion in 2017.
Overall improvements in fiscal conditions and increased focus on non-interest income will continue to sustain the positive growth trend in the segment. The overall strength of our performance for the year is reflected in our improved operating ratios. Other non-financial metrics also gained traction with the customer advocacy and likelihood index, Net Promoter Score (NPS) improving. In addition, the bank continues to feature in the Top 5 category across key segments in the KPMG annual customer satisfaction survey index. We are positioned to fully leverage this positive feedback to further grow our businesses and related revenue lines in 2018.
Noted improvements were not limited to the bank alone, as all subsidiaries within the banking group also exhibited improved performances. Our micro lending business Credit Direct Limited (CDL) recovered from the 2016 decline in revenue driven by local macro-economic impact on its customers’ ability to meet debt obligations to record a 65 per cent growth in profit before tax from N1.3billion in 2016 to N2.2 billion in 2017. The improvement was driven by the realignment of the Subsidiary’s business model and an aggressive recovery posture which will be sustained in 2018.
FCMB UK continued its recovering trend with 250 per cent growth in PBT from N0.1billion in 2016 to N0.3billion in 2017, even as we intensify efforts to complete the variation process for its licence, which will see it transform from a wholesale deposit-taking bank to a retail deposit taker in line with our retail banking focus at the banking group level.
Without doubt, the task ahead is well defined and we expect that continuous improvement in our operating environment will definitely serve as the pivot of our growth. We will continue to strengthen the bank’s balance sheet to remain a key player in the converging banking landscape.
In doing this, we will accelerate our play in the Retail, SME and Agriculture space to increase liquidity at a much lower cost and drive revenue growth. Our institutional and commercial banking spheres will be liability-led, with strong emphasis on transaction-based propositions. We will invest more in technology to build capabilities to drive scale for increased non-interest income growth and customer service excellence. Overall, we will continue the journey of building an agile organisation with a high performance culture, while improving our risk capabilities in line with our moderate risk appetite.