Business

FCMB reassures investors after CBN dividend ban, slashes forbearance loans by over 60%

Published

1 month ago

June 17, 2025

Spread The News

First City Monument Bank (FCMB) Group Plc has issued a detailed reassurance to investors following the Central Bank of Nigeria’s (CBN) recent directive suspending dividend payments by banks with unresolved forbearance exposures or breaches of the Single Obligor Limit (SOL).

In a market-sensitive update on Monday, FCMB disclosed it had cut its credit forbearance loan exposure by more than 60%, from N538.8 billion in September 2024 to N207.6 billion as of May 31, 2025.

The move is part of an accelerated resolution strategy aimed at navigating the CBN’s stricter regulatory environment introduced on June 13, 2025, which affects several Nigerian banks.

The directive is part of the apex bank’s broader efforts to strengthen capital adequacy and risk management in the financial sector.

FCMB explained that the remaining loans—linked to three entities and two obligors—are currently classified as Stage 2 under the IFRS 9 accounting framework.

However, the bank emphasized that it has proactively provisioned for these exposures over the past few years and is optimistic about a near-term resolution.

“The bank has made provisions for these loans over the last few years, and intensified resolution efforts have led to over 60% reduction in its credit forbearance exposures,” the statement said.

FCMB acknowledged that as these loans exit the forbearance regime, they may temporarily shift into Stage 3, increasing its non-performing loan (NPL) ratio to about 11.5% of its total loan portfolio.

However, the bank anticipates a decline to below 10% by year-end, driven by expected loan book expansion.

In addition to forbearance resolution, FCMB is addressing a breach of the CBN’s Single Obligor Limit through a strategic conversion of a N23.1 billion loan into equity.

This conversion, the bank said, has received initial CBN approval for capital verification and is expected to boost its capital base to approximately N267 billion, keeping it well above regulatory thresholds.

“We are currently processing the other regulatory approvals required,” the Group added, positioning the move as a proactive step to align with new capital rules.

Reacting to FCMB’s update, financial analyst Tope Fasua said the bank’s strategy demonstrates sound foresight and regulatory alignment.

“Reducing the forbearance loan book and converting debt to equity are strong capital reinforcement strategies. It positions FCMB to withstand short-term shocks and signals to investors that management is taking decisive action.”

Meanwhile, investment advisor Zainab Iroha cautioned that while the update is reassuring, broader investor sentiment will hinge on how quickly other banks respond to similar pressures.

“Market repricing of Nigerian banking stocks will likely persist until there’s clarity on how deep the exposure runs across the sector.”

Although the CBN’s directive currently restricts dividend payments from FCMB’s banking subsidiary, the Group revealed that its earnings are diversified across multiple sectors, with only 46% of 2024 dividends sourced from its Nigerian banking arm.

The remaining 54% came from non-bank subsidiaries, such as asset management and pension businesses.

“We expect to have sufficient buffers to maintain our dividend policy for the 2025 financial year and the immediate subsequent years,” FCMB said, signaling continued commitment to shareholder value despite regulatory headwinds.

FCMB’s share price fell 6.57% at the close of trading on June 16, 2025, reflecting broader anxiety over the CBN’s clampdown and potential ripple effects across the banking sector.

Analysts believe FCMB’s transparency and aggressive resolution efforts could help stabilize its valuation in the medium term, particularly as other banks begin disclosing similar risk exposures in the wake of the CBN’s new oversight measures.