Fidelity Bank expects strong earnings growth for second year in 2022

Fidelity Bank Plc is expected to report a strong final quarter in the 2022 operations that could lift profit to the region of N46 billion for the full year. That will be an impressive growth of over 29 percent in after tax profit for the year — a top record growth for the bank for the second year and one of the most improved earnings results in the banking industry in 2022.

The bank’s earnings performance in the year as per the third quarter report was driven by four pillars of operating advantages that enabled it beat average banking industry growth marks in key operating numbers.

These include an exceptional growth in interest earnings, which is expected to establish the strongest growth in interest income since 2013. There is also a significantly moderated interest expense that could see a slower increase in cost of funds than experienced in the preceding financial year.

The third key operating advantage of the bank in 2022 is its low volume of credit losses that look quite good to drop for the second year. The fourth support pillar for the bank’s strong growth is its below-industry average operating cost margin — that enabled cost saving with minimum impact on margins.

The bank’s interim financial report at the end of the third quarter shows a combination of the operating advantages to power an increase of roughly 32 percent in after tax profit to almost N35 billion at the end of September 2022.

The third quarter profit figure is almost at par with the preceding year’s full year profit of N35.6 billion. By the bank’s quarterly average profit, the final quarter is estimated to contribute in excess of N11 billion to the full year profit.

Interest income led revenue growth at the end of the third quarter at a record mark. It contributed N210. 4 billion at the end of the period, which is an increase of 53 percent year-on-year.

Interest earnings accounted for 87 percent of the bank’s gross earnings of N242 billion for the nine months of trading — quite close to the full year revenue figure of less than N246 billion in 2021.

Over the same period, interest expenses slowed down relative to interest earnings at an increase of 36 percent to N96.5 billion. The ability to boost interest earnings much faster than its cost of funds increased, is the bank’s great advantage in 2022.

The favourable balance between interest income and expenses produced the strongest growth in net interest income for Fidelity Bank in more than a decade. Net interest earnings grew by 72 percent year-on-year to almost N112 billion at the end of the third quarter, already more than the full year net interest income of less than N95 billion in 2021.

Fidelity Bank reported one of the lowest credit loss expenses among peers at the end of the third quarter at N3.7 billion. While the figure represents a rapid increase of 50.6 percent year-on-year, it indicates one of the lowest loan loss expenses for the bank in many years.

Subject to a major increase in the final quarter, Fidelity Bank looks quite likely to record a decline in credit loss expenses at full year. This is a big cost saving line for the bank given a major drop of 58 percent in loan loss expenses to N7 billion at the end of 2021.

The only main operating challenge for the bank is the same general challenge of inflation-driven other operating expenses that rose by 72 percent year-on-year to N64.5 billion at the end of September 2022.

The expense line led the growth in total operating cost of the bank to 52 percent to close at N91.6 billion at the end of the third quarter. Despite that operating cost margin grew from 34.6 percent to 37.9 percent over the review period, it still remains one of the lowest cost margins in the banking industry.

The increase in operating cost margin did erode profit margin, which declined from 15.2 percent in the same period in 2021 to 14.5 percent at the end of the third quarter. That remains one of the highest net profit margins for the bank in more than a decade.