Nnamdi Okonkwo, Fidelity Bank CEO. Credit: Wikipedia

By JULIUS ALAGBE

Fidelity Bank Plc has raised the bar and set quite a steep performance record as the leading retail lender bolstered its earnings and in the process beat analysts’ estimates.

In its audited financial statement for FY 2019, profit before tax came stronger than consensus analysts’ estimates, being jerked up by 21% to close at ₦30.4 billion.

The retail lender’s bottom line came strong despite the tough operating environment that underscored the year 2019.

Fidelity Bank, a leading financial supermarket in Africa’s largest economy, and one with a strong interest in retail lending have also now raised its shareholders’ fund by 20.4% to ₦234 billion as against the ₦194.4 billion it had in its kitty in 2018.

The results equally reveal that it is capital adequacy ratio berthed at 18.3% while its liquidity ratio which rested at 35.1% also beat the regulatory benchmark.

Gross earnings increased by 14.0% to ₦215.5 billion and this was largely driven by a 15.8% growth in interest and similar income.

Meanwhile, interest and similar income that was generated from the bank’s interest yielding assets accounted for 84.6% of total earnings in the period under consideration.

Supporting the bottom line, Fidelity Bank’s earned income from non-interest yielding activities jerked up more than double from ₦1.6 billion to ₦33.2 billion in 2019.

This was attributed to double-digit growth across key sectors which include a 125.2% surge in credit-related fees, 19.7% increase in trade income, a 13.6% uptick in account maintenance fees in addition to a 13.3% uptick in digital banking income.

Fidelity Bank’s digital banking has also continued to gain traction, as it is being driven by new initiatives in the retail lending segment and the enhancement of its existing digital products.

“We now have 47.4% of our customers enrolled on the mobile/internet banking products, 82.0% of total transactions now done on digital platforms and 31.1% of fee-based income now coming from our digital banking business”, the bank stated in its official notice announcing the results.

The results show that net interest margins improved further to 6.2% from 5.8% in 2018 as the growth in the average yield on earning assets outpaced the increase in average funding cost.

Additionally, the improvement in the yield on earning assets to 13.6% in 2019 was driven by a 19.2% growth in interest income on loans.

This came on the heels of another 6.8% growth in interest income on liquid assets, which led to a 13.2% increase in net interest income.

On the back of an increase in headline inflation in the overall economy which settled at 11.4% on the average in 2019, Fidelity Bank’s operating expenses expanded above the line.

Operating expenses increased by 13.7% to ₦82.0 billion driven by a 58.4% upsurge in NDIC, AMCON, Technology and Advertisement costs.

This led to an increase in the bank’s cost as a proportion of income ratio which inched up to 73.4%.

Equally, the bank reaped from its aggressive deposits mobilization efforts as total deposits taken increased by 25.1% to ₦1.225 trillion from ₦979.4 billion in the comparable period.

This sterling performance around deposits taken was driven by double-digit growth across all deposit types.

Broken down, the bank’s audited financial statement shows that local currency deposits grew by 17.1%.  This accounts for 55.7% of the increase in total deposit while foreign currency deposits increased by 60.5%.

The numbers equally show that foreign currency accounts for 44.3% of the increase in total deposits in 2019.

Foreign currency deposits worth ₦288.6 billion also constituted 23.6% of total deposits, which is above the 18.4% level achieved in 2018.

Fidelity Bank’s retail activities were further bolstered by the management’s aggressive stance to reflate performance in 2019.

Retail banking, however, continued to deliver impressive results as savings deposits increased by 20.7% to ₦275.2 billion.

This makes it the 6th consecutive year of double-digit exponential growth on ascending order.

The audited statement shows that savings deposits account for about 22.5% of total deposits. Explaining this a bit further, the management said this is an attestation of its increasing market share in the retail segment.

Similarly, the bank’s retail loans grew by 42.9% to ₦53.8 billion driven by its new digital lending products and partnership with FinTechs.

The bank stated that as of December 2019 it has disbursed 70,000 micro-loans on Fidelity FastLoan, its flagship digital lending products in partnership with Migo.

On the back of strong retail lending, Fidelity Bank’s net risk assets increased by 32.6% to ₦1.127 trillion from ₦849.9 billion in the corresponding year in 2018.

In terms of risk assets concentration, its foreign currency loans increased by 33.1% and this accounts for 41.2% of the loan book.

On the local side, credit assets to the real sector increased by 32.1% and thus represent 58.8% of the total loan book.

Fidelity Bank’s cost of risk was -0.1% due to the net write-backs of ₦600 million in the year.

The management stated that this includes net losses on de-recognition of financial assets measured at an amortized cost it had on impairment charges.

Thanks to efficient management, its non-performing loans (NPLs) ratio improved to 3.3% from 5.7% in 2018.

This was due to the growth in the loan book and a 25.1% decline in absolute NPLs driven by loan write-offs of over ₦12 billion.

The bank’s capital adequacy ratio (CAR) berthed at 18.3%, liquidity ratio at 35.0% as key ratios beat regulators benchmark.

Speaking on the result, Nnamdi Okonkwo, MD/CEO of Fidelity Bank Plc said: “We closed the financial year with strong double-digit growth across key income and balance-sheet lines.

“This clearly showed that we sustained our performance trajectory and continued to increase our market share driven by significant traction in our chosen business segments”.

However, Fidelity Bank also holds that going into 2020, the management recognizes the negative impact of Covid-19 and the decline in oil prices on the global economy.

The bank also takes note of the pass-through effect on the domestic economy.

“We will continue to take measures to ensure the safety of our staff, customers and other stakeholders during this period whilst activating our business continuity procedures to meet the unfolding scenarios in our operating environment.”, the management said.

Analysts said Fidelity Bank sole ambition is to join Tier-1 Capital gang as it strives to deepen footprints in retail segment further.

What Nnamdi Okonkwo, MD/CEO told analysts

Okonkwo told analysts at an earnings conference call that Fidelity Bank had total credit loss reversal of NGN 0.6 billion in 2019.

The CEO said Fidelity Bank had modelled the 2019 audited financials using the current adjusted exchange rate of N380.

This internal stress test was done to see how any fluctuation in the exchange rate could impact the bank’s capital adequacy ratio.

“When we use that model, our capital adequacy ratio came in at 17.95%. Now this implies that for every N5 adjustment in the exchange rate, the negative impact on Fidelity’s capital adequacy ratio will just be 0.1%”, Okonkwo said.

The CEO told analysts that the last time Fidelity had a significant exchange rate adjustment, it had an oil and gas upstream book of over $500 million – in 2015.

“Today, that book is down to $365 million, and 75% of our exposures in the upstream sector, they have short-term hedges at an average oil price of $50.

“Now the key pressure points for an exchange rate adjustment for us will be the oil-and-gas services, transport, general commerce, manufacturing sectors, and that’s why we have higher cost-of-risk guidance for 2020. We have increased cost of risk of guidance to 1.5%”, the CEO stated.

On the back of developments in the global economy, the Fidelity Bank helmsman projected that the financial year 2020 will be soft.

Thus, the MD forecasts that Fidelity Bank’s profitability for 2020 could be in the region of about 15% lower than what it had achieved in 2019.