FCMB Forecasts Weaker Second Half as Nigerian Economy Shrinks

  • Inflation, disruptions to crude oil production slow business
  • Lender plans bond sale to increase CAR that dropped to 15%

FCMB Group Plc, a Nigerian lender, said earnings will come under pressure in the second half as it sets aside more money for loan losses to cope with a Nigerian economy headed toward a recession.

Profit in the six months through December will probably be weaker than the first half “in view of operating environment challenges and our decision to step up impairment charges,’’ the Lagos-based lender said in a statement on its website. Issues that will affect operations include “a high inflation and interest-rate environment and further disruptions to crude oil production,’’ the company said.

FCMB plans to increase its capital adequacy ratio, which deteriorated to 15 percent in the first half from 18.6 percent previously, through the sale of bonds or by retaining earnings, the company said. Net income surged to 15.7 billion naira ($50 million) in the six months through June, compared with 8.3 billion naira a year earlier, FCMB said last week. Earnings in the second-quarter were boosted by foreign exchange gains, FBNQuest analysts including Tunde Abidoy and Olubunmi Asaolu said in a note.

The Central Bank of Nigeria last week directed lenders to fully provide for foreign-currency denominated debt that increased as a result of the 38 percent devaluation of the naira since a peg against the dollar was dropped in June.

Nigeria’s economy may contract 1.8 percent this year, according to the International Monetary Fund, as tumbling oil prices and production disruptions caused by attacks on wells and pipelines hit government and export revenue, threatening to trigger an increase in unpaid loans and lower businesses for banks. The central bank on July 26 raised the key lending rate to 14 percent, from 12 percent, as it seeks to cool inflation that quickened to 16.5 percent in June.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE