Fidelity Bank’s 147% Jump In Net Interest Income Tops Industry In Q3

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Fidelity Bank Plc apparently found a solution to the general banking industry problem of the rising cost of funds in its third quarter operations when a subdued increase in interest expenses powered a 147 per cent advance in net interest earnings.

The bank’s third-quarter interim report at the end of September 2022 shows that management held interest expenses to a limited increase of 12.7 percent quarter-on-quarter to less than N38 billion for the quarter. At the same time, it achieved a big leap of 53.5 per cent in interest income to over N74 billion for the third quarter.

The development defies the general industry pattern of the cost of funds rising well ahead of interest earnings, which is eroding margins and constraining the profits of banks this year. Moving clearly against the general trend, the bank lifted net interest income by 147 percent quarter-on-quarter to over N36 billion in the third quarter.

The increase represents an additional net interest income of N21.6 billion generated in the third quarter compared to the same period last year.
The bank experienced two major cost increases in the third quarter:  an increase in credit loss expenses from N149 million to N1.7 billion and about 114 percent advance in other operating expenses to N21 billion quarter-on-quarter.

The strong growth in net interest earnings provided the space to absorb the cost increases and yet permit an outstanding growth of 61.6 percent in after-tax profit to N11.6 billion from N87 billion gross earnings for the quarter. 

The year-to-date reading of Fidelity Bank’s earnings at the end of the third quarter gives a strong indication that outstanding performance results are in the making for the bank in the 2022 financial year. 

At roughly N242 billion, gross earnings for the nine months of trading are already quite close to the full-year figure of less than N246 billion in 2021. Also, an after-tax profit of almost N35 billion is virtually at par with the closing figure of N35.6 billion at the end of last year.

The bank’s high growth strategy for the year centers on achieving a favourable balance between interest income and expenses. The bank has taken advantage of raised interest rates to boost interest earnings much faster than its cost of funds is increasing.

Interest earnings amounted to N210.4 billion at the end of the third quarter, which is an increase of 53 percent year-on-year. Over the same period, interest expenses grew by 36 percent to N96.5 billion.

The outcome places the bank on the way to realizing the strongest growth in net interest income in more than a decade. Net interest earnings rose 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.

While loan impairment expenses grew rapidly at 50.6 percent to N3.7 billion at the end of the third quarter, the figure is quite low by industry records. Also, with a major drop of 58 percent in loan loss expenses to N7 billion at the end of last year, Fidelity Bank may see one of the lowest credit losses this year.

The only major challenge on the side of cost for the bank is in respect of the 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 the total operating cost of the bank to 52 percent to close at N91.6 billion at the end of the third quarter. The bank hasn’t seen growth in operating expenses anywhere close to the current rate in decades.

Gross income for the nine months of operations grew at a slower pace of 38.7 percent to almost N242 billion than the total operating cost. The operating cost margin grew from 34.6 percent to 37.9 percent over the review period, which still remains one of the lowest cost margins in the banking industry.

Fidelity Bank has a number of operating advantages going for it this so far this year, which are swelling the bottom line. These are the exceptional growth in interest earnings, the significantly moderated interest expenses, the low volume of credit losses, and the below industry operating cost margin.

The advantages combined to power a 31.8 percent growth in after-tax profit to almost N35 billion at the end of the third quarter, an outstanding profit growth for the second year. The bank closed last year’s operations with an after-tax profit of N35.6 billion.

Fidelity Bank earned N1.21 per share at the end of the third quarter, an increase from 92 kobo per share in the same period in 2021.