FCMB to Expand Outside Nigeria as Oil Slump Hits Home Market

  • Lender identifies East and West Africa as key areas for growth
  • Lagos-based group sees trying times for home market, CFO says

FCMB Group Plc, a Nigerian lender, plans to expand in at least two African countries as the plunge in oil prices reduces opportunities and income for banks operating in the continent’s biggest producer of the commodity.

“We have identified a key market in East Africa and another key market in West Africa,” Chief Financial Officer Patrick Iyamabo said in an interview at the company’s headquarters in Lagos, declining to identify the nations as the information is confidential. “While Nigeria is having trying times, the other markets can be doing great.”

The expansion, which is planned over the next three to five years, will enable FCMB to “smooth revenue and profit volatility,” he said. With a return on equity that compares or exceeds what you have in Nigeria, “greater value can be created for shareholders,” Iyamabo said.

Africa’s biggest economy is reeling from a slump to near 12-year lows in the price of oil, a source of about two-thirds of government revenue and 90 percent of foreign-currency earnings. The central bank’s efforts to all but fix the naira against the dollar for the past year by restricting foreign-currency trading by banks has caused a shortage of greenbacks, hampering companies from expanding or accessing imports.

Increased Risk

“Because of the inability to access foreign exchange, the cash flow circle of businesses has been negatively impacted, which has implications on their abilities to pay their loans,’’ or do more transactions from which banks can earn fees and commissions, he said. Shortcomings by the government to meet some of its obligations to contractors and the difficulties businesses have accessing dollars “means fewer transactions and increased risk for banks,’’ Iyamabo said.

FCMB said Feb. 1 that profit after tax for the nine months through September slumped to 1.87 billion naira ($9.4 million), compared with 14.2 billion naira a year earlier, mainly because of a spike in impairments from investments in the energy industry and a reduction in trade finance-related revenue because of a lack of liquidity with foreign exchange.

Earnings for 2015 were “subdued’’ by a provision in the third quarter, while FCMB will limit loan growth this year to less than 10 percent, Iyamabo said, adding that the lender is expecting the naira to be devalued.

FCMB will invest mainly in retail businesses, companies that are working on products that will substitute imports and industries focused on exports, he said. It will lessen focus on the upstream oil sector, construction and businesses that depend on government revenue owing to increased risk, Iyamabo said.

FCMB shares declined 2.2 percent to 90 kobo, or 0.90 naira, at the close of trading in Lagos, valuing the lender at 18 billion naira. The shares are down 47 percent this year, the worst performer in the 179-member Nigeria Stock Exchange All Share Index, which is down 13 percent.

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