First City Monument Bank maintained growth in revenue and profit in the 2013 financial year despite a slow down from the outstanding growth in the preceding year. The company raised profit to a new peak in the year, an indication that it is returning to stable earnings records after wide fluctuations in the preceding two years. Profit however failed to grow as rapidly as revenue, as operating cost claimed more revenues and eroded profit margin.
The bank earned N131 billion in gross income in the year, an increase of 12% from the full year figure in 2012. This is virtually at par with our forecast gross earnings of N130.5 billion for the bank in 2013. It represents a sharp slow down from the outstanding growth of 44.5% in gross income in 2012. Earnings slow down was an industry wide development for the banking sector in 2013.
Interest income exclusively accounted for the revenue growth in the year, growing by 17% to N101.64 billion. Investment and other operating income declined by 4.0% to N28.12 billion during the year. The decline seems to reflect a drop of 33% in investment securities to N163.64 billion in the year.
After tax profit improved by 6.0% to N16 billion in 2013, a new peak in the bank’s operating history and the first time its profit has clearly beaten the April 2008 high of N15.09 billion. It is nevertheless a major slow down from the big turnaround growth of 252.6% in the preceding year. The bank had recovered from a loss of N9.91 billion in 2011 and posted an after tax profit of N15.12 billion in 2012. Actual profit figure for 2013 is below our projected figure of N17.7 billion for the bank by 10.6%.
The below than expected profit performance is due to a loss of profit margin in the final quarter. The third quarter profit growth rate was not maintained to full year. Net profit margin declined from 13.2% at the end of the third quarter to 12.2% at full year. This is also lower than the net profit margin of 12.9% the bank recorded in 2012. Loss of profit margin was also a general trend in the banking industry in 2013.
A comparatively high growth in operating cost accounted largely for the decline in profit margin in the year, as other key expense lines moderated. Against the increase of 12% in gross earnings, operating cost rose by 33% to N58.15 billion. That led to an increase in operating cost margin from 37.5% in 2012 to 44.4% in 2013. The bottom line was also affected by a near doubling of tax liability, which rose by 94% in the year.
Moderation of two other main cost elements helped to check the incursion of operating cost on revenue. These are provision for loan losses and interest expenses. Loan loss expenses dropped by 37% to N7.98 billion in the year at the same time that net lending portfolio grew by 26%. This is an indication of a significant improvement in the overall risk asset quality of the bank. The bank carries a net credit portfolio of N450.53 billion.
Interest expenses grew at a lower pace of 4.0% than the 12% increase in gross earnings and the 17% rise in interest income. Cost of funds therefore claimed a reduced proportion of gross earnings at 34.7% in 2013 compared to 37.4% in the preceding year.
Interest cost also claimed a reduced share of interest income, which enabled the bank to improve net interest income by an impressive margin of 30% to N58.13 billion in 2013. Deposit liabilities grew ahead of interest expenses at 11% compared to 4% during the year, indicating that the average cost of the naira of deposits declined during the year.
The bank earned 81 kobo per share in 2013 against 77 kobo per share in the preceding year. Net assets per share has increased from N6.93 to N7.26 over the review period. The bank has proposed a cash dividend of 30 kobo per share, a pay-out margin of 37% and a dividend yield of about 9%. The dates for the closure of register of shareholders and dividend payment are yet to be announced.