Profit levels registered by FIMBank for the first half of the month were nearly decimated to one-tenth of the level registered in the first six months of 2008, the bank said in an interim financial statement this week.

The outlook for the second half of the year, on the other hand, is far more buoyant.

For the first six-months of the year, FIMBank posted post-tax profits of US$2.92 million, compared with profits after tax of US$23.81 million registered over the first half of 2008, which were, however, boosted in no small way by the outlier after-tax profit on disposal of its shareholding in Global Trade Finance Limited of US$19.35 million.

The directors have not recommended the payment of an interim dividend for the period under review.

The first half of 2008, the group said in its interim statement, was still fairly buoyant with calm market conditions prevailing before the storm that hit the financial sector in the second half of 2008. In addition to the discontinued profits and extraordinary gains made from the sale of its GTF investments, the first half of 2008 could in no way be compared with the “difficult and challenging first part of 2009”.

The bank is, however, optimistic about the rest of the year. It observes, “With liquidity and capital adequacy ratios at healthy levels and well above the minimum required by regulations, more available and diversified access to funding and a gradual return of confidence and normalisation of market conditions, there is room for optimism that the business will return to its normal levels and will also stabilise.

The bank also expressed confidence that certain credit issues related to some of its financial assets – mainly debt securities and credit linked notes exposures, for which unrealised mark-to-market write-downs remain on the books – should be resolved through restructuring activities that are being currently negotiated.

“The board,” the statement said, “is confident that the remainder of 2009 promises that these mark-downs could be reversed. Improvements in efficiency and positive trends in cost management that have helped the bank to keep to budgets and targets are expected to continue.

“The outlook for the second half of the year is therefore one of increased pickup in business and improved profitability. The board is also optimistic that the continued progress of the Group entities, the planned investment in Russia, a timely return to the Indian factoring market and developments in the Group’s private banking offering will further provide opportunities for growth and long-term profit.”

In the first half of 2009, the Group’s interest and fee-based operating sources of income decreased over the same period for 2008. Net Interest Income decreased by 25 per cent to US$5.31 million, albeit the Net Interest Margin improved to 54 per cent of Gross Interest Income (2008 – 43 per cent). Net Fee and Commission Income dropped by nine per cent to US$9.15 million.

The bank said the continued pressure on global credit risk perception had a negative impact on the fair value adjustments of its trading assets, which resulted in an aggregate downward mark-to-market adjustment of US$1.76 million, all of which were unrealised as at 30 June 2009.

This, the bank said, was partly offset by realised gains on trading assets of US$0.24 million and foreign exchange profits of US$0.47 million, for a net negative trading result of US$1.05 million. The Group reported unrealised gains on other financial assets carried at fair value of US$1.11 million for the first six months of 2009.

“Prospects of any substantive write-backs of unrealised mark-downs in financial assets, which marked the Group’s performance in 2008, are good and being helped by improved trends in the bond markets and restructurings currently under way. However, timing is still difficult as the outlook on credit and impairment issues remains guarded,” the bank stated.

Net Impairment Losses increased to US$1.53 million, reflecting movements in both specific and collective impairment allowances, while Group Net Operating Income of US$13 million was helped by improvements in efficiencies and cost management, with Administrative Expenses decreasing by 25 per cent. Such costs continue to include expenditure related to the start-up and acquisitions of new ventures.

In 2008 the Group booked US$1.98 million in net Share of Profits from equity accounted investees, mainly the contribution from the investment in GTF before its disposal in the second quarter.

For 2009 that has been replaced by a Share of Loss from Egypt Factors of US$0.21 million. The Group continued to measure the shareholding in Menafactors in accordance with IFRS 5 “Non-Current Assets Held for Sale and Discontinued Operations”.

This investment produced a profit of US$0.47 million – a good indication, the bank feels, that the company is now on the right path to growth and profitability.

The Group said it remains committed to the further development of Menafactors as a leading trade finance establishment in the Gulf region, through disposing of a substantial holding in the company in favour of strong institutional partners.

The Group posted an after-tax profit for the period under review of US$2.92 million, with Group basic Earnings per Share amounting to US$0.0215.

“The Group’s performance is largely mirrored in that of the bank which, as the parent, continued to support the operations and start-up activities of its subsidiaries and associates as the case may be.

“As a result, the bank’s profit for the period under review was of US$1.22 million. For the same period in 2008 the bank’s post-tax profit was US$30.95 million. However, this again included the after-tax gain of US$28.81 million made on the bank’s disposal of its shareholding in GTF.

Salient developments

The difficult and challenging economic conditions that characterised the last months of 2008 also set the general tone for the first half of 2009, the bank pointed out in its interim statement.

“Weakening economic cycles, financial market dislocation and a generally spread lack of confidence continued to hamper liquidity and to cause trade to slow down. Against a background of negative economic trends in the major economies and markets, including emerging markets where the bank is particularly active, governments continued to demonstrate a certain determination to secure cross-border normality promptly and a cautious disposition to stability started to return.

“However, indicators of an acceleration and return to full scale activities remained limited as potential credit issues made the prospects of growing the business activity more challenging. As liquidity started to come back slowly to normal levels with pricing remaining tight, the bank took steps to reflect such costs in the pricing to its clients, including its own subsidiaries.”

In the second half of April, the bank saw its combined Euro and US Dollar Seven per cent 2012-2019 Subordinated Bond Issue heavily over-subscribed within minutes of opening. Investment interest came from a wide cross-section of private, corporate and institutional investors, and well over e30 million or US dollar equivalent were raised. e23.6 million and US$8.1 million in bonds were issued, counting over 2,600 investors.

“The directors consider the results of the Bond Issue to be a vote of confidence in the Group’s business model and strategy, which continues to be underpinned by selective international expansion in the form of joint ventures and acquisitions,” the bank states.

During the period under review, FIMBank executed a Mandate Letter with the IFC and the Joint Stock Bank Transcapitalbank, Russia, for the establishment of a joint venture company offering factoring services in Russia. The ownership structure for this new venture is intended to be 40 per cent FIMBank, 40 per cent TCB and 20 per cent IFC and is still subject to the final corporate and regulatory approvals by the respective boards and authorities. TCB is a well-regarded partner; it has total assets of US$2 billion and equity of about US$200 million, and its principal shareholders include the European Bank for Reconstruction and Development and Deutsche Entwicklungsgesellschaft, one of Europe’s and Germany’s largest government-sponsored development institutions. TCB has strong SME lending and trade finance operations.

Elsewhere, in Dubai and Egypt, the Group’s factoring joint-venture companies continued to register steady and encouraging progress. The Group is also seeing the gradual emergence of LCI Factors S.A.L., a small factoring company in Lebanon, in which a 25 per cent stake was acquired in March through Menafactors. In the second quarter substantial progress was registered in discussions with prospective partners and the regulatory authorities in India, which should pave the way for a return to the Indian factoring market.

An authorisation ‘in principle’ was received from the Foreign Investment Promotion Board for a holding of up to 49 per cent in the issued share capital of a new Indian factoring company.