Fidelity Bank: Impressive H1 2020 results amid macroeconomy challenges

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By Kayode Tokede

Fidelity Bank reported stronger growth in key financial indices in Half year (H1) audited result and accounts for the period ended June 30, 2020 on the heels numerous economy challenges facing the banking sector.

The lender recorded impressive growth in profit & loss figures, balance sheets and key financial ratios to maintain its position as one of the most cost effective management Tier- II financial institution in the country.

The group recorded strong performance in the period under review as loans and advances to customers’ recorded double-digit growth to drive interest income.

The audited results by Fidelity Bank also showed a well-structured balance sheet management, as low cost deposit in a bid to reduce overall cost of funding.

Total Assets of Fidelity Bank reached N2.4trillion as at June 30, 2020 over improved advances loans to customers and total deposits.

Growth in net interest income drive profits

Fidelity Bank reports for the period under review showed growth in gross earnings and effective management in net interest income and non-banking operations that lifted profits.

The group had demonstrated the implementation of its strategy despite the numerous challenges facing the sector, to drive gross earnings to N105.76billion, two per cent increase compared to N103.66billion reported in the corresponding period of 2019.

The increase in gross earnings was driven by a combination of 17.8 per cent growth in non-interest income to N18.3 billion In H1 2020 and 2.1 per cent increase in interest income to N87.6billion.

The growth in non-interest income was largely due to N3.8billion increase in foreign exchange related income as well as net gains from financial instruments.

Net Interest Margin improved to 6.4 per cent from 6.2 per cent in 2019FY (Q1 2020: 6.6 per cent), largely due to 200bpts drop in average funding cost to 4.3 per cent from 6.3 per cent in 2019FY. This resulted in a 19.7 per cent drop in total interest expenses to N39.3billion which translated to N11.4billion (31per cent) increase in net interest income.

Yields on earnings assets dropped to 11.5 per cent from 13.6 per cent in 2019 largely due to the downward review of lending rates given the lower interest rate environment and the downward review of rates on intervention funds.

Operating Expenses increased by 8.3 per cent to N46.8billion with about 50 per cent of the cost growth coming from regulatory induced costs (AMCON/NDIC).

However, growth in operating expenses remains below the headline inflation rate with cost-to-income ratio moderating to 70.3 per cent from 73.4 per cent in 2019FY while on a quarterly basis, operating expenses declined by 9.4 per cent QoQ after adjusting for IFRIC 21 Levies requirement.

Fidelity Bank’s reported 21.9 per cent increase in profit before tax to N12 billion in H1 2020 compared to N9.8 billion in H1 2019, while profit after tax came in at N11.3 billion in H1 2020, compared to N8.5 billion posted in H1 2019.

Stronger balance Sheet lifted by hike in customer deposits

Fidelity Bank’s total assets grew by 14 per cent to N2.1trillion as at December 31 ended, 2019 from N1.72 trillion reported in full year ended December 31, 2018.

The lender’s Total Deposits increased by 14.8 per cent to N1.41trillion from N1.23trillion in 2019 as the financial institution recorded strong growth across all deposit products and 10.7 per cent growth in low cost deposits which reduced average funding costs by 200basis points.

Local currency deposits increased by 18 per cent to N1.11trillion while foreign currency deposits increased by 4.2 per cent to N300.8billion.

Retail Banking continued to deliver impressive results as savings deposits increased by 32.2 per cent to N363.9billion.

Savings deposits accounted for 49.1 per cent of the total growth in customer deposits and represented 25.9 per cent of total deposits compared to 22.5 per cent in 2019.

Net Risk Assets increased by 7.3 per cent to N1.21trillion from N1.13 trillion in the 2019.

However, the actual growth in risk assets was 4.5 per cent while the impact of the currency adjustment (Dec 2019: N364.70/$ – Jun 2020: N386.75/$) accounted for a 2.8 per cent growth in the loan book.

Cost of risk increased to 1.3 per cent based on our conservative stance, which led to a significant increase in impairments for the sectors affected by the Covid-19 pandemic. This resulted in an increase in total impairment charge to N7.8billion from a write-back of N0.6billion in H1 2019.

Non-Performing Loans (NPL) ratio increased to 4.8 per cent from 3.3 per cent in 2019(Q1 2020: 4.8 per cent) reflecting the bank’s early conservative assessment of sectors that were affected by the COVID-19 pandemic.

Regulatory Ratios remain above the required thresholds with Capital Adequacy Ratio increasing to 18.8 from 18.3 per cent due to the capitalization of H1 2020 Audited Profits while Liquidity Ratio stood at 32.1 per cent.

The MD/CEO of Fidelity Bank, commenting on the results, Nnamdi Okonkwo stated that, “Our financial performance for the period reflects the resilience of our business model in a very challenging operating environment.

“Due to the global and domestic headwinds witnessed in H1 2020, we proactively increased our cost of risk as the impact of the pandemic slowed down economic activities whilst adapting our business model to the new risks and opportunities of the new normal.

“We believe most of the affected sectors have seen the worst of the pandemic and the new phase of normalcy will unveil some growth opportunities.

“We will continue to monitor and pro-actively manage any evolving risks as the Nigerian economy gradually reopens and economic activities pick-up in key sectors”.