Fidelity Bank Plc FY’19 – Improved asset yield drives earnings

Fidelity Bank
Fidelity Bank may raise $500m in international market
CardinalStone Research 
Fidelity Bank Plc (FIDELITYBK: TP 2.30 – BUY) reported a 24.1% YoY growth in EPS in its audited FY’19 result. The growth in earnings was bolstered by stronger net interest income (+13.7% YoY) and credit writebacks. On a quarterly basis, earnings were relatively flat (-1.6% QoQ) as a 16.2% QoQ growth in net interest income was offset by a 22.4% QoQ jump in operating costs. 
The bank proposed a final dividend of N0.20 per share, which translates to a dividend yield of 11.5% based on last market closing price.
  • Net interest margin improved by 40 bps to 6.2%, supported by higher earnings yield (13.5% vs 12.8% in FY’18) and a 23.6% growth in interest-earning assets (IEAs). The growth in IEAs was largely driven by loans and advances (+30.0%). The strong loan growth led to the rise in loan to funding ratio to 68.2% from 64.2 % in FY’18.
  • During the period, net credit loss reversal amounted to N587 million as credit writebacks of N5.3 billion from an asset were offset by a net loss on de-recognition of financial assets measured at an amortized cost amounting to N4.2 billion, which was subsequently charged on that asset. All in, cost of risk came in at -0.1% compared to 0.5% as at FY’18
  • We note the improvement in asset quality, despite the strong growth in loans during the period. Non-performing loan ratio declined from 5.7% in FY’18 to 3.3% in the review period
  • Non-interest income .2% YoY. We highlight the growth in net fees and commission income (17.2% YoY) which, in our view, is the mainstay of the bank’s non-interest income. Key drivers of the improvement in net fees and commission were stronger credit fees (+125.2% YoY) and improved ATM and account maintenance charges (+19.2% YoY). We note that the growth in non-interest income was stifled by weaker net FX gains (-66.4% YoY).
  • Operating expenses rose 13.7% YoY, largely driven by higher banking sector resolution costs (+19.6% YoY), marketing and communication expenses (+27.3% YoY) and other unclassified expenses (+76.5% YoY). Consequently, the cost to income ratio leapt 5.5ppts to 76.6% during the period.
  • Deposits grew 25.1% to N1.2 trillion. However, we note that the contribution of low-cost deposits shrank 1.8 ppts to 79.8% due to the 43.8% growth in term deposits
  • All in, ROE improved to 13.3% from 11.8% in FY’18. On regulatory compliance, CAR improved to 18.3% from 16.7%, while liquidity ratio weakened to 35.0% from 39.0% in FY’18, though ahead of regulatory guidance of 30.0%


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