FCMB Group’s half-year profit jumps 68% after higher lending rates boost revenue

FCMB Group made capital out of the three upward reviews of the benchmark interest rate by monetary authorities in Nigeria between January and June.

The development set the tone for a 68 per cent increase in net profit, compared to the same period of 2022, and drove revenue.

Shares in the financial services group rose 5.3 per cent, placing it among the top 5 gainers in Lagos on Wednesday following the release of its financial report.

Nigeria’s central bank altogether raised the interest rate by 750 basis points to 26.3 per cent during the period in its dogged push to curb a cost-of-living crisis that is battering household income in the country and crippling growth.

The aggressive stance has allowed banks to charge much for loans, the interest earned on them serving as their main source of revenue. But that has been a pain point for companies and businesses relying on commercial borrowing for financing.

Gross earnings for FCMB Group climbed to N374.5 billion, 57.2 per cent up from what was recorded a year ago. Interest and discount income, at N269.2 billion, improved by as much as four-fifths, but the bulk of that was drained by interest expense, which consumed about 61 per cent of that sum.

Against the usual tendency for banks to witness increased loan defaults when interest rates are high, the lender rather reported a decline as evident in the cash it set aside to offset problem loans, which dwindled to N33 billion from N46.3 billion.

The biggest spending that pressured pre-tax profit was personnel expenses, which accelerated by 70 per cent year on year as wages and salaries soared.

FCMB Group continued to profit from the boom that a deep depreciation of the naira since the liberalisation of Nigeria’s foreign exchange market last year has created for lenders holding assets in foreign currencies.

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On the strength of that, the financial institution hauled in almost seventeen times the foreign exchange trading income it reported in the same period of last year.

On Tuesday, Nigeria’s Senate passed a bill allowing for a 70 per cent windfall tax to be slapped on such incomes by banks, with the Finance Act 2023 on course to be amended to accommodate the change. The parliament’s decision altered President Bola Tinubu’s initial proposal of 50 per cent.

Profit after tax climbed to N59.5 billion from N35.4 billion.

FCMB also garnered more than double the cash it generated through foreign currency translation gains at half-year 2023, helping push other income 57.9 per cent to N84.3 billion.