By OKEY ONYENWEAKU
The recent liquidation of Skye Bank Plc by the Central Bank of Nigeria (CBN) has raised apprehensions about the safety of customer deposits in the various banks as a growing number of bank customers make a bid for the door, migrating from banks that appear high risk to those with larger asset bases and lower non-performing loans (NPLs).
The switch in customer preferences, according to analysts, has led to the need for new classifications for local banks, especially those considered to be strategically important institutions or SIBs. Part of the calculation is the fact that Fidelity Bank Plc, a one-time merchant bank, has since raised its operating profile and has become the strongest bank in the eastern market displacing arch rival, Diamond bank, which equally dominated the market at a point.
A growing consensus is that Fidelity Bank appears to have operating performance to attract prime rating from financial regulators.
Indeed, Managing Director of High Cap Securities Limited, Mr. David Adonri said the tough economic climate has whittled down the performances of Skye Bank (now defunct), Ecobank and Diamond Bank. According to Adonri,”I am reluctantly mentioning Ecobank among those that have grown weaker over time. And I am including Fidelity Bank among the stronger ones”.
Despite the frailties of the banking sector, Fidelity Bank has relied on double digit growth in loan assets, deposits and fee income to improve profit in the first six months of 2018.
The Bank grew its gross earnings marginally by 3.6 per cent to N88.92 billion, driven by 33.8 per cent increase in fee and commission income and 2.5 per cent growth in interest earnings. Its Operating Income was up 32 per cent to N27.46 billion.
Consequently, pre-tax profit rose 27.3 per cent to N8.03 billion, while Profit After Tax (PAT) climbed by 31 per cent to close at N11.8 billion from N9.03 billion recorded in 2017.
The lender’s operating expenses increased by 5.7 per cent year-on-year to N 17.54 on the back of increased technology and regulatory charges (NDIC/AMCON). However, cost to income ratio remained relatively stable at 67.7 per cent (2017FY: 67.5 per cent).
Fidelity Bank made significant progress in cutting its impairment charges by -46.1 per cent to N2.59 billion.
Total deposits grew by 19.7 per cent to N927.9 billion in June 2018 from N775.3 billion in December 2017 on account of double-digit growth across all deposit products whilst funding costs declined. And savings deposits grew by 10.6 per cent YTD from December 2017, which contributed to the drop in average funding cost in H1 2018.
Its risk assets increased by 3.5 per cent year-to-date to N795.4 billion from N768.7 billion in December 2017 with cost of risk at about 0.7 per cent and coverage ratio at 112.7 per cent.
Though its non-performing loan (NPL) ratio is still above the five per cent regulatory benchmark, Fidelity Bank cut it down to by 6.1 per cent in H1 2018 from 6.4 per cent in 2017.
Coverage Ratio improved to 112.7 per cent in H1 2018 from 109.4 per cent in 2017FY.The bank’s Capital Adequacy Ratio stood at 17.0%, based on Basel II computation, better the 15 per cent required and Liquidity Ratio was 33.2 per cent compared to regulatory minimum of 30.0 per cent.
Commenting on the results, Fidelity Bank CEO, Mr. Nnamdi Okonkwo attributed the impressive performance to the disciplined approach in managing the balance sheet growth of the bank, its strategic cost containment initiatives; focused attention to chosen business segments and determined execution of its retail and digital banking strategy.
He stated further, “Gross earnings, net fee and commission income all grew primarily due to the increase in transactional activities. Our digital banking initiative continues to gain traction with almost 40 percent of our customers now enrolled on our mobile/internet banking products and over 80 percent of total transactions now done on our digital platforms.”
‘’It will depend on strategic focus of each bank. At some point it was easy to make twenty percent returns from treasury bills, we knew that was not sustainable so expectedly, it has come down. Those who stay focused in their core business at a time like this, will remain profitable. For instance, if you look at our income distribution in 2017, you will see that we made about twenty-five percent of our revenue from non-interest income, which was as a result of investment in digital technology.
We used digitization to drive a lot of non-funded income. We also took advantage of our balance sheet optimization to increase yield in short term instruments. We have also cautiously resumed extending credits to customers in the consumer/retail segments, following improvements in salary payments’’, he had told Business Hallmark .
Fidelity Bank has continued to move against the head and tail winds. A combination of innovation, personalized customer services have calibrated its rating of the financial institutions.
Analysts believe that Fidelity Bank Plc is now playing in the league of the big banks such as First Bank of Nigeria Limited, Guaranty Trust Bank Plc (GTBank), Zenith Bank Plc, United Bank for Africa Plc (UBA), Access Bank Plc, Ecobank Nigeria were designated as Systematically Important Banks (SIBs) based on their impact on the Nigerian financial sector.
The systematically important banks were eight at that time in September 2014, when the CBN issued a framework for SIBs, which was scheduled to become operational in March 2015.
Formerly the Big eight included First Bank of Nigeria Limited, Guaranty Trust Bank Plc (GTBank), Zenith Bank Plc, United Bank for Africa Plc (UBA), Access Bank Plc, Skye Bank Plc, Ecobank Nigeria and Diamond Bank Plc were designated as SIBs.
In fact, these banks have been ranked based on the following strategic indices, which include the size of their total assets, branch network, capital adequacy ratio (CAR), liquidity ratio, NPLs and so on. Most of them have continued to meet the criteria for ranking as SIBs before now.
But Business Hallmark research has shown that with the volatility in the economy some of the banks do not appear to meet the criteria for which they were so classified. At the beginning, these lenders which were tagged, ‘’Too Big to fail” looked strong and robust at that point in time and merited the prestigious position.
However, the trend appears to have changed. Some of these banks have skidded off the track and are no longer qualified to remain in the top ranking. One of such banks is Skye Bank Plc which appears to have failed the majority of regulatory benchmarks, forcing the CBN to axe its board and management.
Analysts also observe that Diamond Bank is undergoing a critical time and may have fallen off the wagon from the club of SIBs while there has been serious debate over where Ecobank Transnational Incorporated belongs.
Whereas the CBN has not officially announced that any bank has been dropped from the SIB log, industry observers believe the bank which has been unable to publish its financial statements since September 2015, can no longer be considered as “too big to fail”. In 2014, Skye Bank was the fourth largest commercial lender in the country with 469 branches across the country after acquiring defunct Afribank, christen Mainstreet bank when it was nationalised by government.
While SIBs still account for over 70 per cent of total assets of the country’s banking industry, the total assets of Diamond Bank Plc shrunk in the last three years. It has dropped -61.92 per cent from N4.34 trillion at the end of 2014 to N1.65 trillion in March 2018, mainly as a result of the adverse impact of falling asset quality and the sell- off of its West African operations.
As the economic managers in Nigeria continue to fine tune strategies, there is increasing concern that the projections by both the domestic and international bodies are still elusive. That is the sad situation despite the fairly good price of crude oil at $72pbd and above.
‘’We often laugh, whenever we are associated with a particular ethnic region of the country. You will be surprised to know how strong we are in the Northern part of the country. The Northern client’s deposits are more than the clients’ deposits from the eastern parts of the country. Remember that Fidelity Bank is made up of FSB International, Manny Bank and Fidelity. We have gone way beyond being associated with a particular region of the country, while there is nothing wrong in being associated with a region, if we are associated as the bank for the North, we want to be the best bank for the North, East and in the South/South and South/West. But fortunately for us we are spread across the 36 states in the country’’, Managing Director of Fidelity Bank , Mr. Nnamdi Okonkwo said.
Those who have followed the growth of the bank have rated them impressively and as a tier 1 financial institution. This notwithstanding, some analysts perceive the bank as one of the best managed in the banking industry. Industry experts hinged this perception on the highly experienced and qualitative persons in the management cadre.
A visit to the bank’s Head Office on Fidelity Bank Close, Off Kofo Aboyomi betrayed an organization which future lies in what it is able to do today to leap ahead. However, our reporter observed the banks effort to render qualitative service to customers. Its customer services officer was professional enough to explain in details some its products.
Of the 10 branches of the bank visited by our reporter in various parts of Lagos, there were impressive comments by customers about its services. But this has not diminished the bank’s ambition to play bigger and do better.