Fidelity Bank Q2 2018 Initial Impression: Lower Impairment Charges Boost Bottom Line.

Nnamdi Okonkwo, MD/CEO Fidelity Bank Plc

September 27, 2018/InvestmentOne Report

  • Net interest income of N13.9billion, down 17.7% q/q; down 23.2% y/y
  • Non-interest income of N10.1billion, up 141% q/q, up 34.4% y/y
  • Profit before tax of N8.1billion, up 62.2% q/q; up 49.9% y/y
  • Profit after tax of N7.2billion, up 57.1% q/q; up 53.3% y/y 

Yesterday, Fidelity Bank released its long anticipated Q2 2018 financial results which revealed a 141% q/q boost in non-interest income to N10.1billion, supported by a reversal from a loss of N352million in Q1 2018 to a net gain of N3.5billion in Q2 2018 from trading income which combined to more than offset the 17.7% q/q decline in net interest income as Net Interest Margin (NIM) was down 20bps q/q to 6.5%, reflective of the lower yield environment; to lift PBT up 62.2% q/q to N8.1billion and PAT up 57.1% q/q to N7.2billion.  

On a y/y basis, the impressive bottom line performance was supported by lower loan impairment charges which declined 53.4% y/y to N1.9billion, reflective of improvements witnessed in the telecommunications and downstream oil & gas sectors. 

Boost in Non- Interest Income lifts bottom line 

Evidently, the bank’s effort in driving its digital banking strategy is paying off, as the bank recorded a 30.1% y/y increase in non-interest income to N14.3billion in H1 2018. This was driven mainly by a 60.9% y/y increase in net fees and commission. Furthermore, with about 40% of the bank’s customers now enrolled on its digital platforms in H1 2018, up 10% y/y, 80% of its total transactions are now done on these platforms. 

However as operating expenses grew 5.7% y/y in H1 2018, the bank reported a 4bps y/y increase in its Cost to Income Ratio to 67.7% (although lower 500bps lower q/q). We highlight that the marginal increase in the ratio despite the boost income growth was due to the 19.7% y/y increase in AMCON charges to N3.8billion. 

Lower Impairment Charges 

We highlight that q/q, impairment charges rose to N1.9billion in Q2 2018 from N702million in Q1 2018, due to the impact of IFRS 9 adoption. However, on a y/y basis, impairment charges were down 46.1% in H1 2018 to N2.6billion, attributable to reduced charges in the telecommunications and downstream sectors. Resultantly, the Bank’s Cost of Risk declined 60bps y/y to 0.7% even as the bank’s gross loan book increased 3.7% YtD to N852billion. The Bank’s Non-Performing Loan (NPL) ratio went up 30bps y/y to 6.1% in H1 2018 (albeit 20bps lower q/q), largely attributable to the 7% y/y increase in absolute NPLs to N52billion in H1 2018. The bank also reported an increase in its coverage ratio to 112.7% in H1 2018 from 98.6% in H1 2017, as the bank took a 50% provisioning on its US$57million exposure to 9Mobile, which it is yet to classify as an NPL. 

RoE – Highest in a Decade 

The Banks Net Interest Margin contracted 90bps y/y in H1 2018 and 20bps q/q to 6.5%. Of course, this is largely attributable to the lower interest rate environment during the period. Cost of Funds came in 80bps lower both y/y and q/q at 6.6% as the bank continues to drive its digital banking strategy and as pricing on lower deposits reduced harmonized with the lower interest rate environment. As a result of the above mentioned, the Bank’s Return on Equity (RoE) came in 350bps higher y/y to 14.2% in H1 2018, commendably, is the highest it’s been since 2008. The impressive improvement can also be attributed to the 4.3% y/y decline in equity base to N184billion in H1 2018 due to the impact of IFRS 9 adoption. 

Finally, the bank’s Capital Adequacy Ratio (CAR) printed at 17.0%, 184bps lower y/y due to the impact of the provisioning of about N28.4billion, taken through equity as required under IFRS, although still higher than the regulatory benchmark of 15%.

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