Fidelity Bank: Getting a firm hold on costs

Fidelity Bank experienced a high-speed turnaround last year but a sharp slowdown marks the bank’s earnings story so far this year. A slow growth in revenue is not permitting a reasonable growth in profit despite a firm hold on costs.

A renewed strength in profit performance saw a 93% profit lifting in 2017 from a 30% drop in net profit in the preceding year. The breakout performance established a new profit high for the bank at N18.86 billion – beating for the first time the N18.2 billion record since 2012.

The high growth momentum of last year is clearly missing so far in the current year. Fiscal 2018 looks like a year of cooling off for the bank on the earnings track. Management is however doing everything possible to defend profit.

The bank closed first quarter operations with gross earnings of N43.68 billion, a year-on-year increase of 6.4%. Non-interest income is undermined by net losses from financial instruments and zero earnings from investment securities. It is expected that gross earnings would accelerate in the subsequent quarters.

Revenue growth gained momentum in 2017, breaking free from single digit records since 2013 to 18.4% – the highest revenue growth rate in five years. That provided the strength for the strong profit growth the bank achieved in 2017.

With the slowdown in revenue in the current year, profit growth too has weakened. First quarter ended with an after tax profit of N4.63 billion, a year-on-year improvement of 7%. Based on the first quarter growth rate, the bank is expected to maintain profit in the region of the elevated performance in 2017.

The bank’s management has maintained its firm grip on costs, which enabled it to defend profit margin at the end of the first quarter. Loan impairment charges went down slightly over the review period at N702 million and operating expenses maintained its proportionate claim on revenue.

Interest expenses however increased at a slightly higher pace than revenue, which left net interest income flat at slightly below N17 billion. This is still maintaining the pattern of last year when interest cost grew well ahead of interest income.

Management applied cost savings from loan loss expenses to counter the effect of rising interest expenses and therefore defended profit capacity. Profit margin was virtually unchanged at 10.6% at the end of the first quarter.

The bank closed the first quarter with earnings per share of 16 kobo, slightly better than the 15 kobo per share it earned in the same period last year. The bank earned 65 kobo per share at the end of 2017 and gave out 11 kobo per share to shareholders in cash dividend.

Fidelity Bank has a balance sheet size of close to N1.5 trillion, a net customer loan portfolio of about N740 and an investment basket of over N250 billion. It carries a customer deposit portfolio of nearly N860 billion and stands on an equity cushion of slightly below N180 billion.