September 13, 2021/CSL Research
Fidelity Bank’s recently released AUDITED H1 2021 numbers showed significant y/y growth in both Pre and Post-tax profit, supported by significant growth in Fee and Commission Income (up 39.1% y/y) and a reduction in OPEX (down 9.8% y/y) and Impairment Charge (down 70.6% y/y) amidst a marginal y/y growth in Net Interest Income. Q/q however, while Interest Income grew moderately, funding cost grew faster, leading to a significant drop in Net Interest Income (down 25.3% in Q2 compared with Q1 2021).
Interest Income grew marginally, up 1.7% y/y due to lower yields. Average yields on earning assets dropped to 9.4% from 11.5% in H1 2020. Net Loans to Customers were up 15.8% in H1 2021 from the December 2020 position. However, the actual growth was 14.7% while the impact of the currency adjustment (2020FY: N400.3/$ – H1 2021: N410.6/$) accounted for the rest of the growth. Interest Expense, on the other hand, declined 1.2% y/y but grew significantly q/q, up 72.7% resulting in an increase in funding cost in Q2 compared with Q1. The bank’s cost of funds was down to 3.2% in H1 2021 compared with 4.3% for H1 2020, but up from 2.5% in Q1 2021. Overall, Net Interest Income was up 4.1% y/y to N28.8bn but down 25.3% in Q2 compared with Q1, bringing Net Interest Margin (NIM) to 5.3% in H1 2021 compared to 6.3% in Q1 2021 and FY 2020.
|Source: Company, CSL Research|
Net Fee and Commission Income grew significantly, up 39.1% y/y and 25.6% q/q due to increasing transaction volumes. The y/y growth in Fee and Commission Income was driven by strong `growth in Commission on Banking Services (57.7%), Account Maintenance Charges (50.6%), Digital Banking Income (49.4%) and Trade Income (33.7%) etc.
Other Income (Other operating income and Net gains from financial assets at fair value through profit or loss) however, was down 52.7% y/y but grew significantly q/q. The y/y decline was largely due to Net loss from financial assets at fair value through profit or loss of N4.99bn recorded in H1 2021 compared with a gain of N2.96bn in H1 2020.
The bank reported an Impairment Charge of N2.3bn in H1 2021, bringing annualised Cost of Risk (COR) to 0.3% in H1 2021, compared with 1.4% in FY 2020 and 1.3% in H1 2020. The bank reported NPL ratio of 2.8% in H1 2021 compared with 3.8% for FY 2020.
Operating Expenses was down 9.8% y/y to N42.2bn in H1 2021. The stronger decline in OPEX, compared with a marginal 2.2% y/y decline in Total Operating Income (down 2.2% y/y) led to a moderate improvement in Cost to Income Ratio (CIR ex-provisions) to 64.8% in H1 2021 compared with 70.3% in H1 2020. Q/q, OPEX declined 16.0% in Q2 compared with Q1 2021.
Overall, both Pre-tax Profit and Profit after tax grew significantly, up 72.4% y/y and 70.8% y/y respectively to N20.6bn and N19.3bn. Annualised RoAE comes to 14.1% in H1 2021 compared with 10.5% in FY 2020.
Capital adequacy ratio (CAR) of 18.8% remains significantly above the regulatory minimum of 15%
We have a Buy recommendation on Fidelity Bank. Our estimates are under review. Current price: N2.30/s.
Fidelity Bank Management will hold a conference call on Wednesday, 15 September 2021 at 15.00 hours Lagos | 15:00 London | 10:00 New York | 16.00 Johannesburg to discuss the H1 2021 Audited Results.