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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