Fidelity Bank: Expect another strong profit advance

Fidelity Bank’s 2018 operation is expected to establish profit at a new peak, up on the 93% net profit lifting in 2017. The bank gained speed in earnings growth after an initial lull on the earnings track and has changed the full year profit outlook for the better.

At the end of the third quarter in September 2018, profit was already quite close to the full year figure for the preceding year. The full year earnings outlook for 2018 is positive for Fidelity Bank with renewed strength in earnings expected to be sustained for the second year after a big turnaround in 2017.

Revenue growth in 2018 isn’t likely to come anywhere close to the five-year best record of 18.4% in 2017 due to slacken performance of non-interest earnings. Management has however extracted increased profit margin from each naira of earnings through a firm hold on costs.

Gross earnings came to N139 billion for Fidelity Bank at the end of the third quarter operations, a year-on-year increase of 6.9%. Interest income accounted for all the increase in revenue with a growth of 9%, as non-interest income declined. Non-interest income was undermined mostly by a drop of 40% in other operating income to N3.53 billion.

Gross income is estimated to be in the region of N190 billion for Fidelity Bank for the 2018 operations. This will be an increase of 5.6% over the closing figure of nearly N180 billion in 2017. A significant slowdown in revenue growth is therefore expected for the bank in 2018 compared to the 18.4% star growth record of the bank in 2017.

The bank’s management countered the revenue slowdown with a firm hold on costs, which enabled it to improve profit margin at the end of the third quarter. The biggest impact in cost management happened in respect of loan impairment charges, which dropped a clear 55% to N3.28 billion over the review period. This enabled the bank to raise net interest income after credit loss expense by 18% to almost N55 billion at the end of the third quarter.

At N62 billion, interest expenses remained under control with a slightly higher increase than revenue. That permitted an increase of 8% in net interest income to N58.2 billion. This is an improvement from the position of the preceding year when interest cost grew well ahead of interest income.

Operating expenses moderated relative to revenue with a decline in personnel cost. The cost savings enabled management to counter the effect of slow growth in revenue and improve profit capacity. Profit margin improved from 11% in the same period in 2017 to 12.8% at the end of the third quarter of 2018.

After tax profit amounted to N17.86 billion for Fidelity Bank at the end of the third quarter, a year-on-year growth of about 24%. This is already quite close to the full year profit figure the bank posted in the preceding year.

Fidelity Bank is expected to push up after tax profit to the region of N23 billion for the 2018 financial year. This will be an increase of 22% over the closing profit figure of N18.86 billion in 2017.

The ability to grow profit that much in a year following a breakout growth of 93% plus a sharp drop in loan loss expenses as well as firm control on operating cost indicate a strong positive outlook for the bank.

The bank closed the third quarter with earnings per share of 62 kobo, up from 50 kobo per share it earned in the same period in 2017. It closed 2017 with earnings per share of 65 kobo and paid 11 kobo per share to shareholders in cash dividend.

Fidelity Bank grew the size of the balance sheet by 22% to N1.68 trillion at the end of September 2018 from the closing figure in 2017. At the end of the third quarter, the bank was carrying a net customer loan portfolio of over N830 billion and an investment basket of N255 billion. It held a customer deposit portfolio of nearly N987 billion and stood on an equity cushion of over N192 billion.