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Tuesday, April 28, 2015

Fidelity Bank plc: 2014 Impressive Results Validate Growth Strategy

Fidelity Bank plc is a Nigerian-based company. The bank’s offering includes personal, private and corporate banking services, as well as Diaspora banking. It also supports small, medium and large-scale agricultural establishments within the Fidelity Agri-Nigeria Project.

From January 1, 2006, the Bank merged its assets, liabilities and undertakings, including real and intellectual property rights with that of FSB International Bank Plc and Manny Bank Plc. The Bank was quoted on the Nigerian Stock Exchange in 2005.

Strong interest earnings driven by loan growth

Gross earnings for the year ended December 2014, increased by 4.32 percent to N132.40 billion compared with N126.91 billion the same period of the corresponding year (FY) 2013.
Interest income increased by 20.92 percent to N104.30 billion in December 2014, from N86.25 billion in December 2013. Net interest income surged by 58.45 percent to N48.82 billion in December 2014 compared with N30.82 billion as of December 2013.
Pending the bank’s conference call, we attribute the growth at the top line level to increase in treasury bills, interest income from loans and advances, government bonds and interbank placement.
Despite the Central Bank’s tightening policy, the bank was able to keep net interest income flattish at N55 billion.

The Apex bank, CBN increased the Cash Reserve Ratio (CRR) on private sector deposits from 15 to 20 per cent with immediate effect while also retaining CRR on Public Sector deposits at 75 per cent in addition to increasing the Monetary Policy Rate (MPR) by 100 basis points from 12 to 13 per cent.
It said that the hike was expedient as fall in oil price weighed on external reserve culminating in the devaluation of the currency.
The Apex bank also devalued its target rate for the naira to N168 per dollar from 155 in November. After that failed to stabilize the currency, it scrapped the official exchange rate on Feb. 18, moving all transactions on to the interbank market.

Surge in profits despite increased operating expenses
Fidelity achieved a remarkable boost in profitability despite increased operating expenses.
For the year ended December 2014, the bank’s profit after tax (PAT) grew by 78.73 percent to N13.80 billion in December 2014 compared with N7.72 billion the same period of the corresponding year 2013. Profit before tax (PBT) also followed the same growth trajectory as it spiked by 72.33 percent to N15.51 billion in 2014 as against N9.02 billion in 2013.
The growth in profit can be attributed to the bank’s ability to boost operating income while keeping costs at a single digit. Operating expenses were up by 5 percent to N53.62 billion in 2014 compared with N50.03 billion as at December 2013.
Operating income increased by 20.84 percent to N76.30 billion in December 2014 compared with N63.33 billion in December 2013. However, net fee income from foreign currency reduced by 5.36 percent to N17.18 billion in 2014 as against N18.16 billion in 2013.
Reduced cost-to-income ratio means increased efficiency
Fidelity’s strong efficiency ratios are a manifestation of the lenders ability to use focus strategy and cost control mechanism that helped catapult profit.
The bank’s pre-tax margin increased to 11.71 percent in December 2014 from 7.10 percent as at December 2013. Net margin, a measure of profitability and efficiency increased to 10.41 percent in 2014 as against N7.09 billion in 2013.
Earnings per share EPS increased by 77.77 percent to 48k in December 2014 compared with 27k as at December 2013.

Despite regulatory induced costs such as Asset Management Corporation of Nigeria (AMCON) charge that spiralled  operating costs of most Nigeria lenders, Fidelity’s cost to income ratio fell to 69.85 percent in 2014 as against 80.11 percent as at December 2013. It means the Nigeria lender is using the technology at its disposal in cutting costs while maximizing share holder’s wealth.
Nigerian lenders are mandated to pay 0.5 percent of their total assets as AMCON charge, a policy that has been bleeding profit of most banks.
The return on average equity (ROAE) increased to 8.20 percent in December 2014 as against 4.75 percent in December 2013, while the return on average assets (ROAA) increased to 1.21 percent in December 2014 compared with 0.38 percent as at December 2013.This means Fidelity is using the resources of shareholders in generating higher profits.

Strong total assets driven by loan and deposit growth
There were improvements in asset quality driven by loans and deposit growth.
Loans and advances to customer grew by N541.68 billion in December 2014 compared with N426.07 billion in December 2013, while deposit to customer moved by 2 percent to N820.03 billion in December 2014 against N806.32 billion as at December 2013.
The Nigeria lender was also aggressive in lending as loan to deposit ratio jumped to 66.05 percent in 2014 from 52.84 percent as at December 2013.

Share performance and outlook
Fidelity share price closed at N2.03 on the floor of the exchange while market capitalization was N57.94 billion.
Nigeria’s Gross Domestic Product grew at the rate of 5.94 percent y/y in Q4 2014, down by 83bps from 6.77 percent recorded in the corresponding quarter of previous fiscal year.
The non-oil sector was the major driver of the growth recorded in Q4 2014, with activities in crop production, trade, textile and real estate contributing the most. With the conduct of a fair and peaceful election, investors’ confidence in the country’s economy has increased which means the economy may pick in last quarter of 2015.

Headline Inflation increased to 8.4 percent y/y in February 2015 from 8.2 percent y/y recorded in January 2015. The marginal rise in the rate was mainly as a result of the increase in the prices of seven of the non-food commodities classification, especially alcoholic beverages and transportation costs.
Nigerian foreign reserves decreased by $5bn (12.7 percent) from $39.5bn at end of Q3 2014 to $34.5billion at end of Q4 2014.
BALA AUGIE

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