Key Takeaways from Fidelity Bank H12020 Investors Conference Call

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Wednesday, September 9, 2020/ 09:00PM/ by TheAnalyst /Image Credit:  Ecographics


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Despite coronavirus-induced headwinds, Fidelity Bank Plc successfully chiselled growth in its PBT in H1 2020. The bank's performance according to analysts could be attributed to its re-strategizing its operations and adopting a fit-for-purpose business continuity plan.


Highlights

  • Gross earnings rose by +2.0% Y-o-Y to N105.8bn in H1 2020.
  • Profit Before Tax  (PBT) went up by +21.9% to N12.0bn from N9.8bn in H1 2019.
  • Cost-to-income ratio (CIR)fell to 70.3% in H1 2020 from 73.4% in 2019  finsncisl yesr end (FY).
  • Non-performing loans (NPL) Ratio rose to 4.8% in H1 2020 from 3.3% in 2019 FY.
  • Total Equity of N250.7bn compared to N234bn in 2019 FY.

 

Topline Uptick; A Reason to Smile


Gross Earnings

Gross Earnings grew by +2.03% (Y-o-Y) in H1 2020. The bank's gross earnings rose from N103.7bn in H1 2019 to N105.8bn in H1 2020. The increase in gross earnings was largely driven by a combination of a +17.8% growth in non-interest income to N18.3bn and a +2.1% increase in interest and similar income to N87.6bn which accounted for 82.9% of total earnings (see Chart 1).


Chart 1: Fidelity Bank Gross Earnings

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Source: Proshare Research, Fidelity Bank Financial Statement 

 

Profit

Fidelity Bank's profit before tax (PBT) climbed a few notches by +21.92% in H1 2020. It's PBT skipped up from N9.81bn in H1 2019 to N11.96bn in H1 2020. The was able to post a noticeable rise in its PBT despite an N8.5bn increase in impairment charges from a write-back of N0.6bn in H1 2019 to N7.8bn (see Chart 2).


Chart 2: Fidelity Bank PBT (N'bn)

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Source: Proshare Research, Fidelity Bank Financial Statement 

 

Cutting Cost - Hugging a New Normal


Cost-to-income Ratio

The bank's total operating income inched forward by +27.1% to N66.6bn while total operating expenses rose by +8.3% to N46.8bn largely due to increased regulatory costs. Analysts observe that the bank's growth in operating expenses was below the growth in the economy's headline inflation rate of +12.82% in July 2020. The bank recorded a mild decline in its cost-to-income ratio. Its CIR for H1 2020 saw an improvement to 70.3% from 72.8% in H1 2019 but the CIR remained one of the highest for the banking sector in the first two quarters of the year (see Chart 3).

 

Chart 3: Cost-to-income Ratio (%)

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Source: Proshare Research, Fidelity Bank Financial Statement


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Loans and Deposits; A Show of Resilience


Deposits from Customers

Despite the slowdown in economic activities in H1 2020 (especially in Q2), Fidelity Bank recorded an increase in deposits from customers. Deposits from customers rose to +28.16% in H1 2020. Its deposits from customers increased from N1.097trn in H1 2019 to N1,405.95bn. The growth in deposits was strong across all deposit products. Local currency deposits were N1.11trn representing 76.1% of total deposits while foreign currency deposits increased by +4.2% to N300.8bn which accounts for 21.4% of total deposits. Savings deposits increased by +32.2% YTD to N363.9bn from N275.2bn in 2019FY which accounts for 25.9% of total deposits from 22.5% in 2019FY. Savings was also a major reason for the growth in total deposits (see Chart 4). 

 

Chart 4: Deposits from Customers (N'bn)

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Source: Proshare Research, Fidelity Bank Financial Statement

 

Loans to Customers

Loans to customers rose in H1 2020 by +20.99% Y-o-Y, its loan to customers rose from N999.32bn in H1 2019 to N1,209.1bn in H1 2020, while it's net loan book bumped by +7.3% YTD to N1,209.1bn from N1,127.0bn in 2019FY. However, Fidelity Bank noted that actual growth in loans was +4.5% while the impact of naira devaluation resulted in +2.8% growth (see Chart 5).


Chart 5: Loans to Customers (N'bn)

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Source: Proshare Research, Fidelity Bank Financial Statement

 

NPL Ratio Dips - Swimming Against the Tide

The bank's NPL ratio dropped slightly in H1 2020. Its NPL ratio declined from 5.4% in H1 2019 to 4.8% in H1 2020. Analysts attribute its relatively high NPLs to the early identification of sectors likely to be adversely affected by the coronavirus pandemic and economic lockdowns. Foreign currency NPL accounted for 11.5% of total the bank's total NPLs which was largely in the downstream oil & gas and transport sectors (see Chart 6).


Chart 6: NPL Ratio (%)

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Source: Proshare Research, Fidelity Bank Financial Statement

 

Fidelity Bank H1 2020 Actual Vs. FY 2020 Guidance

Growth Expectations Of Key Indicators

S/N

Index

H1 2020 Actual

2020 FY Target

Comment

1

Net Interest Margin

5.8%

6.0%-6.5%

Behind Target

2

Tax Rate

9.1

10.0%-15.0%

On Track

3

Loan Growth (YTD)

17.6%

7.5%-10.0%

On Track

4

Deposit Growth (YTD)

12.0%

7.5%-10.0%

On Track

5

Cost to Income Ratio

72.8%

Below 70.0%

Behind Target

6

Proposed Dividends

N/A

30-50% (of PAT) band

N/A

7

NPL Ratio

5.4%

Below 6.0%

On Track

8

Cost of Risk

-0.2%

1.25%

On Track

9

ROAE - Post Tax

13.5%

13.0%

On Track


Source: Fidelity Bank


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