As economic activities gradually improve and investors look for opportunities in selected sectors, the latest result posted by Fidelity Bank Plc has shown an upward tick in profitability despite a slight dip in gross earnings.
The Profit Pump Keeps Priming But...
The bank's gross earnings dropped year-on-year (Y-o-Y) by -3.74%, from N161.06bn in year-to-date (YTD) September 2019 to N155.03bn in YTD September 2020. This was majorly driven by a -24.77% Y-o-Y fall in fees and commission income, despite the +28.76% Y-o-Y growth in net interest income (see chart 1).
In foreign currency terms, the bank saw a -22.46% decline in gross earnings from US $524.75m recorded in 2019 to US $406.9m in 2020, foreign currency translation cost (the reduction in dollar income as a result of a depreciation of the naira) for the period was US $98.21m, using CBN's official exchange rate during each period.
Chart 1: Fidelity Bank - Gross Earnings
Profit before tax rose by +3.64% Y-o-Y, from N20.59bn in the corresponding period of the previous year to N21.35bn, the growth in profit before tax was majorly driven by a +20.91% Y-o-Y increase in other operating income despite the +3.09% increase in other operating expenses (see chart 2).
Translating to foreign currency, Fidelity bank posted a -16.51% decline in PBT, from US $67.11m recorded in year-to-date (YTD) September 2019 to US $56.03m using CBN's official rate during the different periods. Foreign currency translation cost was US $13.52m as a result of the devaluation of the domestic currency.
Chart 2: Fidelity Bank - Profit Before Tax
Impairment charges of the Bank worsened for the period, from recoveries made the previous year to losses reported for the period. Fidelity bank recorded a -327.85% rise in impairment charges from a write-back of N4.84bn recorded in 2019 to an impairment charge of N11.04bn (see chart 3).
Chart 3: Fidelity Bank - Impairment Charges
Non-performing loans of the bank dropped marginally in 2020, from 4.80% in September 2019 to 4.70% recorded in September 2020. The breakdown of the NPL for the period shows that the bank is highly exposed to the oil and gas sector, as the oil and gas sector accounted for 30.3% of the deposit money institution's NPL ratio (see chart 4).
Chart 4: Fidelity Bank - Non-Performing Loans
Total assets grew significantly by +30.68% Y-o-Y, from N1.97trn in September 2019 to N2.58trn in September 2020. Major drivers of the growth in the bank's assets were the cash and balances with Central Bank, loans, and advances to customers and intangible assets, which increased by +51.76%, +18.47%, and +71.98% respectively (see chart 5).
Total liabilities to total assets ratio for the period was 89.82% from 88.75% in September 2020.
In foreign currency terms, Fidelity bank recorded a +5.27% growth in total assets which was lower than the percentage growth in naira terms, from $6.42m recorded in September 2019 to $6.76m recorded in September 2020 using the CBN's official exchange rates.
Chart 5: Fidelity Bank - Total Assets
The Bank's total shareholders fund increased Y-o-Y by +18.24%, from N221.73bn in 2019 to N262.17bn in September 2020. Retained earnings, statutory reserve, regulatory risk reserve, and fair value reserve were major drivers of the growth recorded in total equity, they grew by +7.22%, +19.38%, +289.27%, and +77.10% respectively (see chart 6).
The debt-to-equity ratio for the period was 101.03% from 106.25% recorded in the corresponding period of the previous year.
In foreign currency, Fidelity bank recorded a decline of -4.75% in total shareholders fund was in contrast to the growth recorded in the domestic currency, from $722.43bn in September 2019 to $688.12bn in September 2020.
Chart 6: Fidelity Bank - Total Shareholders Fund
The bank's cost-to-income for the period declined to 66.30% from 71.7% reported in YTD September 2019 but operating income rose Y-o-Y by +3.09% while the lenders other operating incomes increased by +20.91% (see chart 7).
Chart 7: Fidelity Bank - Cost-to-Income Ratio
Return on equity (RoE) dipped to 11.0% in 9 months 2020 from its 13.80% in the contemporary period of 2019 (see chart 8).
Chart 8: Fidelity Bank - Return-on-Equity
Like other deposit money lenders COVID-19 has taken its toll on Fidelity Bank but the bank has still managed to fend off some of the worst consequences of strong domestic economic headwinds with the country's gross national output or GDP shrinking by -6.10% by the end of the second quarter of 2020. The outlook for the bank may seem better in Q4 2020 if the COVID-19 outcome of a gradual economic recovery turns out to be a V-shaped swoosh.