Will Fidelity Bank Grow Profit The Third Year?
MICHAEL MOSES
Fidelity Bank has recorded substantial profit improvements over the past two years that established a new profit peak at the end of 2018. The bank is however on the watch list this year whether it can push up profit for the third year running or lose the momentum. A strong growth of 28 percent in the first quarter isn’t expected to be sustained to full year.
The question mark on profit outlook reflects a continuing weakness on revenue performance, as interest income – the main revenue line of the bank remains constrained. Again, the credit loss expense, which provided a big cost saving area last year, is on the rise so far this year. Also, interest expenses are maintaining a trend of growing ahead of interest earnings for the third consecutive year.
Profit seems set to slow down sharply for the second year in 2019 to the level of flat or moderate improvement. Rising loan loss expenses still pose a threat to the modest profit outlook. With the loan book up by 14 percent in the first quarter from the closing figure last year and loan impairment expenses rising by over 47 percent year-on-year, the strength for another profit improvement this year is yet to be found.
Fidelity Bank ended first quarter trading in March with gross earnings of N48.44 billion, an improvement of close to 12 percent year-on-year. Non-interest income is again leading the revenue improvement as was the case in 2018 with an outstanding growth of 73 percent to N9.8 billion. Interest income edged up 2.6 percent to N38.7 billion over the review period.
Based on the growth rate in the first quarter, gross income is projected at N194 billion for Fidelity Bank at full year. This will be a marginal improvement of less than 3 percent over the closing revenue figure of N189 billion the bank reported in 2018. This would be a further slowdown from a revenue improvement of 5 percent last year and 18.4 percent growth in 2017.
Last year, management applied a firm hold on costs to address the revenue slowdown. This provided the room for improving profit margin and lifting profit close to six times as fast as revenue. The room for cost cutting seems to be missing so far this year.
The biggest cost saving last year came from credit loss expenses, which dropped by 63 percent to N4.2 billion during the year. This was a positive indication for the bank in terms of progress on loan recovery. The movement this year is on the reverse direction.
At the end of the first quarter, net loan impairment expenses grew by 47.4 percent year-on-year to over N1 billion. That has blocked the cost saving centre that provided the strength for the profit improvement achieved last year. The bank’s loan impairment expenses appear manageable however, being not as excessive as recorded by many other banks over the years.
Interest expenses are still posing a challenge to the bank, as happened in the preceding year. Cost of funds grew two and half times as fast as interest income during the period to stand at about N23 billion at the end of March. Interest cost claimed an increased share of interest income at over 59 percent compared to about 57 percent in the same period last year.
Net interest income continues to be choked by interest expenses, which permitted only a marginal improvement of 2.5 percent to N15.77 billion.
Operating expenses grew slightly below gross earnings at 10.4 percent to N16.7 billion, providing a little room for cost saving. This is a slight improvement compared to last year when total operating expenses grew ahead of revenue. Operating cost margin was slightly reduced at 34.5 percent at the end of the first quarter – quite a good record by the industry standard.
Profit margin improved from 10.7 percent in the same period last year to 12.3 percent in March 2019, ticking up from 12.1 percent at the close of 2018. This is the highest net profit margin the bank has seen since 2013.
Fidelity Bank closed the first quarter operations with an after tax profit of N5.94 billion, an increase of 28 percent year-on-year. That growth rate is likely to slow down in the course of the financial year.
The full year profit figure is projected at N25 billion for Fidelity Bank in 2019 subject to possible changes that could undermine profit capacity. The full year outlook indicates a profit improvement of 9 percent for the bank in 2019 from an after tax profit of N23.93 billion the bank posted at the end of 2018.
Fidelity Bank closed the first quarter operations with earnings per share of 21 kobo, improving from 16 kobo in the same period last year. The full year outlook is 86 kobo against 79 kobo per share reported at the end of 2018. It paid a cash dividend of 11 kobo per share to shareholders for the 2018 trading.
Fidelity Bank grew the size of the balance sheet by 8.7 percent to N1.87 trillion within the first three months of 2019. It held a net customer loan portfolio of over N966 billion and investment assets of more than N300 billion at the end of the first quarter. Its customer deposit portfolio amounted to over N1 trillion supported by an equity standing of over N200 billion at the end of March 2019.
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