Fidelity Bank Improves Growth Trajectory

In a period when financial institutions recorded marginal growth, Fidelity Bank Plc posted impressive performance for the half year ended June 30, 2018, writes Goddy Egene

When Fidelity Bank Plc announced a delay in filing its results for half year- ended June 30, 2018, many thoughts went through the minds of stakeholders. Considering the fact that some banks posted marginal growth, many were apprehensive that Fidelity Bank Plc could record an unimpressive first half (H1) results. However, those apprehension gave way to enthusiasm as the bank released its results last week showing double-digit growth in bottom-line.

Half year results
Details of audited H1 results indicated that Fidelity Bank Plc recorded gross earnings of N88.917 billion, up from N85.821 billion, while net interest income fell from N32.944 billion to N30.887 billion. Fees and commission income increased from N9.411 billion to N13.703 billion. Profit Before Tax (PBT) jumped from N10.2 billion to N13.010 billion from N10.2 billion. Profit After Tax (PAT) rose by 31 per cent to close at N11.8 billion from N9.03 billion recorded in 2017.

Total deposits, a measure of customer confidence, increased by 19.7 per cent to N927.9billion from N775.3 billion in 2017. Loans and advances also increased from N786 million to N795 million, showing how supportive the bank is to customers. Total Assets grew by 13.7 per cent to N1.568 trillion from N1.379 trillion in the previous period.

Commenting on the results, Chief Executive Officer, Fidelity Bank Plc, Mr. Nnamdi Okonkwo attributed the impressive performance to the disciplined approach in managing the balance sheet growth of the bank, it is strategic cost containment initiatives, focused attention to chosen business segments and determined execution of its retail and digital banking strategy.

He said: “Gross earnings, net fee and commission income all grew primarily due to the increase in transactional activities. Our digital banking initiative continues to gain traction with almost 40 percent of our customers now enrolled on our mobile/internet banking products and over 80 percent of total transactions now done on our digital platforms.”
According to him, as shown in recent years, Fidelity Bank’s retail digital banking strategy has continued to positively impact the business. This was again evident in the HI 2018 results as savings deposits increased by 10.6 per cent to N197.5 billion.

“The bank is on track to achieving a fifth consecutive year of double-digit savings growth. Low cost deposits now account for 73.8 per cent of total deposits” he explained further.
Although total operating expenses grew by 5.7 per cent to N32.7 billion, Okonkwo maintained that the bank’s cost to income ratio remained relatively stable at 67.7 per cent when compared to 67.5 per cent reported in the previous year.

This is in spite of the double-digit inflationary environment in Nigeria. With regulatory ratios such as the Capital Adequacy Ratio at 17 per cent, liquidity ratio at 33.2 per cent, well above required threshold, Okonkwo was optimistic that the bank will sustain this sterling performance in the second half of the year.

Analysts’ Assessment
According to analysts at Renaissance Capital, PBT of Fidelity Bank came in at 53 per cent of their run rate, while PAT came in higher at 59 per cent , owing to a lower than expected tax rate of nine per cent , vs their 18 per cent expectation.
“On a sequential basis, PBT was up an impressive 61 per cent quarter-on-quarter (QoQ), largely driven by much stronger income during the quarter. We like the decent eight QoQ (+3%YtD) growth in the bank’s loan book, which was largely driven by the manufacturing, general commerce and transport segments. We find this performance impressive in light of the tepid growth in the sector,” they said.

Commenting on the deposit growth, the analysts said it also came in strong, although they would have preferred an improving deposit mix – term deposits increased to 26 per cent of total deposits, from 24 per cent in first quarter (Q1) 18 and 23 per cent in 17. Cost of finance (CoF) improved nonetheless, down to 7.1 per cent in 1H18 from 7.3 per cent in 1H17, as pricing on expensive deposits lowered in line with the interest rate environment.
The bank’s non-performing loan ( NPL) ratio stayed remained resilient at 6.1 per cent in 1H18, although this number still does not account for the classification of 9Mobile as an NPL.

The bank has taken a 50 per cent provision (through equity), on its $57 million exposure. CoR of 0.6 per cent in 1H18, compares to 0.4 per cent in 1Q18 and this represents 23 per cent run rate vs our FY18 estimates.
Cost to income (CIR) improved to 67.7 per cent in 1H18, compared to 72.7 per cent in 1Q18 (albeit marginally higher than 67.5 per cent in FY17).

“Though the reduction in CIR was driven more by income growth than controlled opex, we like this development given the bank’s high costs have historically concerned us. The bank’s return on equity (RoE) of 12.2 per cent is the highest it has been since 2008, driven by a combination of higher RoA and leverage – leverage of 7.6x in 1H18 compares with 6.9x in FY17, while RoA of 1.6 per cent , compares with 1.4 per cent, within the same periods. Contributing to this RoE uplift, is of course the IFRS 9 impact of a lower equity base,” they said.

Leading MSMEs Funding
Fidelity Bank Plc has been championing the funding of medium small and medium scale enterprises (MSMEs), a development that has attracted commendations from regulators and industry watchers. The bank has equally pledged to support ongoing efforts aimed at strengthening Nigeria’s agricultural value-chain by providing innovative funding schemes and technical advisory services to this sector and general commercial agribusiness projects.

Fidelity Bank has extended loans amounting to over N60 billion to the SMEs segment in the country, noting that its decision to move in the direction of supporting SMEs was driven essentially by the sector’s huge potential to become a major foreign exchange (FX) earner and help boost the country’s revenue base.

The bank’s focus on MSMEs financing has received wide commendations and awards. For instance, Fidelity Bank was awarded the “SME Friendly Bank of the Year 2017” in utmost recognition of its support for MSMEs in Nigeria. The accolade which was bestowed upon the bank at the 2017 Lagos Chamber of Commerce & Industry (LCCI) awards was a clear testament of the bank’s resolve to raise a new generation of entrepreneurs. As part of its core mandate of trade promotion and business & policy advocacy, the LCCI recognises deserving corporate organizations, public institutions and individuals that have contributed meaningfully to the development of commerce and industry in different sectors of the Nigerian economy on an annual basis.

Receiving the award, the bank said it validated the bank’s efforts at promoting small enterprises.
“MSMEs are the engine room of any economy thus creating a dedicated SME Banking Division that ensures that we focus on providing solutions to their challenges through a multifaceted approach,” the bank said.

“Fidelity Bank has always been in the business of helping people grow. We are extremely happy to be associated with this and it is such a great honour to receive this award,” it added.
The bank reiterated its unflinching commitment to driving economic growth by helping government to reduce its dependence on oil income.