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MICHAEL MOSES.
The profit prospects of Fidelity Bank for the 2019 financial year is brightening up again with the operating momentum that was gained in the second quarter from credit loss write back.
A net loan loss write back of N5.5 billion at half year dropped like a windfall that prevented a declining net interest earnings from hitting the bottom line.
A sudden change from a rapidly growing credit loss expenses in the first quarter to a major net write back position was the most critical development on the bank’s income statement in the second quarter. A good part of the gains was however claimed by net losses of N4.7 billion on de-recognition of financial assets at fair value.
Loan impairment expenses had risen by over 47 percent year-on-year in the first quarter. The position has changed to a net write back figure in the second quarter to the tune of a 311 percent leap from a net loan loss expense in the same period last year.
With the loan recovery success, the bank seems to have found the strength for profit improvement for the third year running. As expected, profit growth slowed down rapidly from 28 percent in the first quarter to 15.5 percent year-on-year at the end of half year trading in June 2019. A further slowdown is still expected in the second half of the year.
Revenue performance gained a little strength in the second half, as interest income – the main revenue line of the bank, accelerated from 2.6 percent in the first quarter to 7.2 percent at the end of the second quarter. Non-interest income maintained its leading role on revenue improvement as was the case in 2018 though it slowed down from 73 percent in the first quarter to 45.6 percent at half year.
Interest expenses are still maintaining a trend of growing ahead of interest earnings and this has been the trend since 2017. Profit outlook has however improved from the initially anticipated flat growth to reasonable improvement. That will still be a sharp slowdown for the second year.
The bank’s audited accounts for the half year ended June 2019 shows gross earnings of N103.65 billion – an accelerated growth from N48.44 billion in the first quarter. It represents a year-on-year growth of 12.3 percent, slightly improved from the first quarter record.
Based on the stronger earnings performance in the second quarter, gross earnings projection is revised upward for Fidelity Bank from the initial N194 billion to N210 at the end of 2019. This shows a marked improvement in revenue growth expectation from the earlier projection of less than 3 percent to 11 percent over the full year gross income of N189 billion in 2018. This means revenue is expected to accelerate from 5 percent improvement last year having slowed down from 18.4 percent growth in 2017.
Fidelity Bank’s half year audited accounts also show an after tax profit of N13.68 billion, which indicates an improved growth momentum from the profit figure of N5.94 billion at the end of the first quarter. This represents a year-on-year growth of 15.5 percent, slowing down as expected from 28 percent growth in the preceding quarter. A further slowdown in profit growth is to be expected for the bank in the second half.
The full year profit projection is revised upward from N25 billion to N27 billion for Fidelity Bank in 2019. The revised projection indicates a strong profit improvement of 18 percent for the bank in 2019, doubling the initial projection of 9 percent. The bank posted an after tax profit of N23.93 billion at the end of 2018.
The bank’s management continues to apply a tight control on costs, which provides the ability to keep profit growing ahead of revenue. Profit has been growing far ahead of revenue since 2017, which is being maintained in the current financial year. The room for cost cutting, which was missing in the first quarter, reappeared in the second quarter.
As happened last year, credit loss expense line is again providing the biggest cost saving for the bank. From the half year position, a much bigger cost saving is to be expected this year from this expenditure line than recorded in 2018.
Reversing a sharp growth of 47.4 percent in net loan impairment expenses in the first quarter, Fidelity Bank shifted suddenly to a net credit loss write back position in the second quarter. Against a net loan loss expense of over N1 billion in the first quarter, the bank closed half year operations with a net credit loss write back of N5.47 billion.
It was, no doubt, a windfall rising by 311 percent year-on-year from a net credit loss of N2.6 billion. This is the source of the strength the bank put up in profit performance in the second quarter.
As in the preceding year, interest expenses are still posing a challenge to the bank, growing more than twice as fast as interest income at 16.5 percent compared to 7.2 percent at the end of June 2019. Cost of funds claimed an increased share of interest income at over 57 percent at half year compared to 52 percent in the same period last year. This has continued to choke net interest income, which proceeded from an improvement of 2.5 percent in the first quarter to a 3 percent decline to less than N37 billion at half year.
With the cost saving from loan loss write back, the bank improved net profit margin from 12.8 percent in the same period last year and from 12.3 percent in the first quarter to 13.2 percent at the end of June 2019. This is the highest net profit margin the bank has seen since 2013.
Fidelity Bank closed half year operations with earnings per share of 47 kobo, improving from 41 kobo in the same period last year. The full year outlook has improved to 93 kobo against 79 kobo per share earned in 2018. Cash dividend is expected to improve from 11 kobo per share the bank maintained for the second year in 2018.
BADEJO ADEMUYIWA has 23 years experience as a Finance Writer, specialising in Insurance and Investigative Reporting.
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