FCMB Group to Acquire 96 Percent of AIICO Pensions
Ladi Balogun -Group Chief Executive at FCMB
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FCMB to restructure 50% of loan book, considers remote work for staff

FCMB Plc said it will restructure about half of its loan portfolio as the group sustains uptrend performance in the first quarter of 2020 on account of diversified business model.

Speaking with analysts at earnings conference, the Group Chief Executive Officer, Ladi Balogun said FCMB preemptively as well as in response to requests from customers sought to restructure about 50% of its entire loan portfolio.

MarketForces recalls that the Central Bank of Nigerian recently granted commercial banks leave to consider temporary and time base restructuring of debtors books – terms and tenor.

Meanwhile, the financial services group reiterated that its earnings performance is on the uptrend because of its diversified its business model.

In its previous earnings conference call with analysts, the group had hinted about it plans to diversify its earnings concentration from banking.

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Balogun said: “We see that generally our performance has been on the upward trend, most indices showing double-digit growth rates.

“Our profit before tax stood at ₦5.4 billion, which was a 26.5% rise from the year before, same time last year for the first quarter of 2020”.

Speaking further with analysts, the GCEO said FCMB balance sheet has grown quite strongly with total assets now approximately ₦1.9 trillion, grew about ₦1.43 billion.

FCMB boss stated that what is really driving this performance is the fact that the group has been able to successfully diversify its business model.

The GCEO stressed that some of the group’s high-growth areas are now achieving scale, and they are beginning to basically contribute a bigger proportion of the group revenues than some of the more volatile areas.

“We believe this trend will continue in spite of the challenges that we are currently facing with the economy, the health situation and oil prices”, Balogun stressed.

Explaining further, Balogun said there are three key strategic themes for the group at the moment.

The first, according to the lender is to build resilience.

“We have been gradually strengthening our capital base as adequacy ratio stands at 17%.

“This is in spite of a 24% growth in our loan book.

“The group have been adding to it very gradually, with a little bit of Tier-2 raised towards the end of last year while maintaining fairly modest dividend payout ratio”, he added.

Balogun said liquidity is also improving, rising from 32.9% at the end of last year to 36% at the end of Q1 largely as a result of deposit growth.

“I think it’s important to stress that our cash reserve requirement now stands at about ₦313 billion compared to ₦208 billion in December 2019 and ₦161 billion a year ago.

“What this demonstrates actually is the fact that we have been able to keep liquidity at fairly buoyant levels in spite of the very significant amount of our balance sheet that have been quarantined in cash reserves”, the GCEO explained.

Balogun said; equally important to FCMB group is diversifying the business as earlier hinted in the previous meeting.

He explained that the first way in which the group sought to diversify its business was just to make sure that it is acquiring a lot of customers.

“We have less concentration in the banking business. In this regard, we’ve seen that our customer numbers grew from 5.6 million a year ago to 7.4 million 12 months.

“We’ve also seen that personal and business banking now account for 73% of our deposits, 29% of our risk assets and 66% of our net revenue.

“This speaks to the point I was making earlier about some of our less-volatile, high-growth businesses now accounting for a majority of our revenue”, the GCEO said.

Balogun said asset management is how FCMB is seeking to diversify away from banking, which the group know is fraught with quite a lot of regulatory risks.

FCMB Chief also recognised that asset management is much more sensitive to the macro environment.

“In that regard, we’ve seen that business grow significantly in terms of profits, where we have a 37% year-on-year growth in PBT.

“Now, this accounts for about 9% of our overall PBT as a group”, he added.

“Assets under management (AUM) have increased by 26% year-on-year to ₦427 billion.

“This is largely coming from our non-pensions business, the growth that is, as we are able to leverage the bank’s distribution channels to acquire more customers”, the GCEO stated.

We’ve also seen steady growth in the Pensions business, the group also added.

The GCEO said digital lending is an area that FCMB is quite excited about in the business because the benefits go beyond just giving a much better customer experience.

“It is also helping to reduce our own cost-to-income in the lending business.

“We’ve successfully been able to achieve digital lending not just for personal banking customers but also our SME customers.

“The book now stands at ₦16.3 billion of all digital loans, and it makes up about 7% of the personal business banking loan book.

“The trends that we are seeing in the month of April, during lockdown, is actually seeing an acceleration even in digital lending, and the asset quality continues to hold up”, Balogun explained.

Explaining the group response to COVID-19, Balogun said in terms of protecting our employees, FCMB group has instituted a work-from-home policy during the period of the lockdown.

“Our plan now that we’re in a relaxed lockdown situation, at least for now, is that about 50% of our workforce will continue to work from home for the entire 2020 or unless we find that there’s some significant change in the situation”.

“However, we also see that, long term as a business that work from home is going to become a more integral part of improving productivity for us and also improving employee satisfaction.

“We will be raising our number of open branches actually in that from 50% to about 60% of our branches will be open.

“So just about 40% will be closed for the time being.

“All the ATMs, however, remain open, the staffing in the branches will be reduced by about 60%, and others will work from home”, the GCEO elaborated.

In terms of community support, we have budgeted about ₦400 million for the year, FCMB group boss stated.

FCMB has already expended about ₦250 million of that for the coalition set up by the Central Bank of Nigeria and other participants in the private sector, he said.

Balogun said the group has also set aside about ₦150 million for other interventions, many of which have already been deployed.

“For customers, we’ve tried to ensure that all our services are available remotely or digitally, including account opening, which you’ve seen has remained fairly strong, whether it be business accounts or SME, Balogun explained.

He stressed that payments, foreign exchange, lending and investing are all happening digitally and remotely.

“The group is trying to ensure that, that becomes increasingly the new normal for our customers.

“Even where customers have documents, physical documents, which need to be submitted for transactions, we’re encouraging scanning of those and only in a few instances that we need verification of the physical documents or the originals”, the GCEO stated.

FCMB said in conjunction with the CBN, it has reduced intervention loans to 5% interest rate, with N50 billion intervention lending available now.

Also, the GCEO stated that lender has preemptively, in response to requests from customers sought to restructure approximately about 50% of our entire loan portfolio.

The group stated that it expects to see some expense reduction from the run rate; and this is coming from restricted travel, limited branch operations as well as the work-from-home policies it has introduced.

“We’re ensuring, as we saw in Q1, that in spite of the cash reserve requirement issues, that we continue to strengthen our liquidity, where possible, raising wholesale funding, mindful of the fact that, of course, 50% of that will be deducted as cash reserve.

“So pricing is very sensitive, but more importantly, mobilizing particularly low-cost funds at this time and continuing to drive our digital acquisition.

FCMB bolsters 2019 earnings, says guidance prior to C0VID-19 stands

“We’re mindful of preserving our capital, so we will continue to explore Tier 2 capital-raising opportunities”, the group stated.

Balogun said FCMB will maintain a modest dividend payout ratio.

“We see a lot of our loan growth this year outside of the retail and SME space coming from the top-tier corporates”, he added.

FCMB said it is pursuing a number of intervention funding transactions for those top-tier corporates, particularly in agriculture, manufacturing and health care.

“We think part of the effects of COVID globally as we are seeing is depreciation in the currency and, of course, the inflationary impacts of that.

“So, we are quite active now in our asset management business cross-selling products and solutions that will hopefully help people counter the inflation effect”, Balogun said.

FCMB to restructure 50% of loan book, considers remote work for staff