September 28, 2018
By Abdulquddus OKELE InvestAdvocate
Lagos (INVESTADVOCATE)-Nigeria’s top tier lender, Fidelity Bank Plc on Tuesday recorded a Return on Equity (RoE) which came in 350 basis points higher year-on-year to 14.2 percent in the half year (H1) period ended June 30, 2018, highest in 10 years, since 2008, according to analysts report at InvestmentOne.
The report noted the impressive improvement can also be attributed to the 4.3 percent year-on-year decline in equity base of the bank to N184 billion in H1 2018 due to the impact of IFRS 9 adoption.
Other factors responsible for Fidelity Bank’s impressive record in RoE in a decade is that Net Interest Margin contracted 90 basis points year-on-year in the review period and 20 basis points quarter-on-quarter to 6.5 percent, which was attributed largely to the lower interest rate environment during the period.
Also, cost of Funds came in 80 basis lower both year-on-year and quarter-on-quarter at 6.6 percent as the bank continues to drive its digital banking strategy, as pricing on lower deposits reduced and harmonized with the lower interest rate environment, analysts affirmed.
To support, this, the bank’s Capital Adequacy Ratio (CAR) printed at 17.0 percent, 184 basis points lower year-on-year due to the impact of the provisioning of about N28.4 billion, taken through equity as required under IFRS, although still higher than the regulatory benchmark of 15 percent, the report says.
Fidelity Bank posted a 141 percent quarter-on-quarter boost in non-interest income to N10.1 billion, supported by a reversal from a loss of N352 million in H1 period of 2018 to a net gain of N3.5 billion in the review period from trading income which combined to more than offset the 17.7 percent quarter-on-quarter decline in net interest income. Net Interest Margin (NIM) was down 20 basis points quarter-on-quarter to 6.5 percent, reflective of the lower yield environment.
InvestmentOne reports, the impressive bottom line performance on a year-on-year basis, was supported by lower loan impairment charges which declined 53.4 percent year-on-year to N1.9 billion, reflective of improvements witnessed in the telecommunications and downstream oil & gas sectors.
Bottom line up on improvement in Non-Interest Income
Fidelity bank’s effort in driving its digital banking strategy is paying off, as the lender posted a 30.1 percent year-on-year boost in non-interest income to N14.3 billion in H1 2018. Analysts say this was driven mainly by a 60.9 percent year-on-year increase in net fees and commission.
Also, the lenders digital banking strategy has shown that about 40 percent of its customers have now enrolled on its digital platforms in H1 2018, up 10 percent year-on-year, 80 percent of its total transactions are now done on these platforms.
Furthermore, savings deposits surged 10.6 percent to N197.5 billion; putting the bank on track to achieving a fifth consecutive year of double-digit savings growth, as low cost deposits now account for 73.8 percent of total deposits.
Again, as operating expenses grew 5.7 percent year-on-year in H1 2018, the bank reported a 4 basis points year-on-year increase in its Cost to Income Ratio to 67.7 percent (although lower 500 basis points lower quarter-on-quarter). “We highlight that the marginal increase in the ratio despite the boost income growth was due to the 19.7 percent year-on-year increase in AMCON charges to N3.8 billion,” InvestmentOne reports.
Lower Impairments Propelling Earnings
The bank’s impairment charges rose to N1.9 billion in the review period from N702 million in first quarter (Q1) of 2018, due to the impact of IFRS 9 adoption. Worthy of note, is that on a year-on-year basis, impairment charges were down 46.1 percent in H1 2018 to N2.6 billion, attributable to reduced charges in the telecommunications and downstream sectors.
Consequently, Fidelity Bank’s Cost of Risk declined 60 basis points year-on-year to 0.7 percent even as the bank’s gross loan book increased 3.7 percent year-to-date to N852 billion compared to peers which consequently led to the increase in credit related fees.
The lender’s Non-Performing Loan (NPL) ratio went up 30 basis points year-on-year to 6.1 percent in H1 2018; but 20 basis points lower quarter-on-quarter, largely attributable to the 7 percent year-on-year increase in absolute NPLs to N52 billion in H1 2018.
Analysts at InvestmentOne revealed the bank also reported an increase in its coverage ratio to 112.7 percent in H1 2018 from 98.6 percent in same period of the corresponding year, as the bank took a 50 percent provisioning on its $57 million exposure to 9Mobile, which it is yet to classify as an NPL.
A review of Fidelity Bank’s pretax profit for the half-year (H1) period ended June 30, 2018 increased 27.3 percent to N13.01 billion from N10.21 billion posted a year ago.
Post-tax profit of the Bank rose 31.1 percent to N11.84 billion from N9.03 billion reported the same period of 2017.
Gross earnings of Fidelity Bank surged from N85.82 billion in the H1 period of 2017 to N88.91 billion declared the review period of 2018; indicating a rise of 3.6 percent, the lender said in a filing with the Nigerian Stock Exchange (NSE).
Shares of Fidelity Bank as at the close of trading Thursday on the domestic bourse rose 1.76 percent to N1.73 from N1.70 traded the previous session, gaining 0.03 kobo per share.