FCMB Nigeria: H1 2015 insights: Caution is the Watchword

Dear Africa interested individuals:
                                                        FCMB released its H1 2015 earnings on July 29th, 2015.  These are our summarized findings:

  1. FCMB has applied caution over the past six months in its business dealings.  Management preferred to avoid potential big losses than pursue potential big gains.  
  2. Transactional business climate at the bank has slowed down (reduced customer activity) and even the transactions carried out came with a heftier price tag.  
  3. Deposits increased by $260m; despite this, net loans decreased by $197m.  Viable lending opportunities that the bank is comfortable given its present challenges were scarce.  
  4. As a lending institution, the bank is finding it more expensive to source funds and service its own debt in relation to generating interest (cash) income on loans disbursed.  It is therefore, very plausible and logical why the bank slowed down lending.  The bank's core business of lending became more expensive to carry out qualitatively and quantitatively.   
  5.  The numerical increase in investment securities was almost equivalent to the increase in property and equipment.  The bank is priming itself for a better operating environment while technically hibernating until the "coast is clear."
  6. The bank has overstretched itself on debt for business funding purposes and this has also impacted its ability to take on fresh risks even if so desired.  In my opinion, the bank's debt profile is now a burden rather than an asset.  Equity raising is expected in Q4; the low stock price will limit its ability to raise the desired equity amount (just like what happened to Access Bank early in 2015.)  
  7. Equity capital is not as readily available as its financial leverage implies.  
Time to close this out.  FCMB is being cautious; this is not of management's own doing for the most part.  The operating environment and reduced flexibility to adjust to changes in its operating environment have left FCMB sitting more on the fence rather than running past it more times than it had hoped for.    

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