November 16, 2021/CSL Research

Fidelity Bank’s recently released unaudited 9M 2021 numbers showed significant y/y growth in both Pre and Post-tax profit, supported by strong growth in Net Fee and Commission Income (up 55.3% y/y) and a reduction in OPEX (down 5.4% y/y) and Impairment Charge (down 77.8% y/y) which compensated for the y/y decline in Net Interest Income (down 13.4% y/y). Q/q however, while Interest Income grew moderately, funding cost grew faster, leading to a significant fall in Net Interest Income (down 31.8% to N14.7bn in Q3 compared with Q2 2021).

Interest Income grew marginally, up 3.7% y/y due to lower average yields. Net Loans to Customers were up 21.6% in 9M 2021 from the December 2020 position. Interest Expense, on the other hand, grew faster, up 26.1% y/y  to N72.5bn. Also, on a q/q basis, Interest Expense grew significantly, up 36.9% resulting in an increase in funding cost in Q3 compared with Q2. Overall, Net Interest Income was down 13.4% y/y to N65.0bn while also down 31.8% in Q3 compared with Q2. This brings Net Interest Margin (NIM) to 4.4% in 9M 2021 from 6.3% in FY 2020.

Source: Company, CSL Research

Net Fee and Commission Income grew significantly, up 55.3% y/y and 20.2% q/q due to increasing transaction volumes. The major driver of the y/y growth in Fee and Commission Income came from ATM Charges (+66.7% y/y), Account Maintenance Charges (+48.7% y/y), Commission on Travellers Cheque and Foreign Bills (+67.4% y/y) and Commission on E-banking activities (+39.5% y/y).

Other Income (Other operating income and Net gains from financial assets at fair value through profit or loss) however, was down 8.1% y/y but grew moderately q/q (up 15.3%). The y/y decline was largely due to Net loss from financial assets at fair value through profit or loss of N5.02bn recorded in 9M 2021 compared with a gain of N2.98bn in 9M 2020.

The bank reported an Impairment Charge of N2.5bn in 9M 2021, bringing annualised Cost of Risk (COR) to 0.2% in 9M 2021, compared with 1.4% in FY 2020 and 1.2% in 9M 2020. The bank reported NPL ratio of 2.8% in 9M 2021 compared with 3.8% for FY 2020.

Operating Expenses was down 5.4% y/y to N60.3bn in 9M 2021 while Total Operating Income was down 5.5% y/y, leading to a deterioration in Cost to Income Ratio (CIR ex-provisions) to 66.4% in 9M 2021 compared with 66.3% in 9M 2020. Q/q, OPEX declined 6.2% in Q3 compared with Q2 2021.

Overall, both Pre-tax Profit and Profit after tax grew significantly, up 31.4% y/y and 29.9% y/y, respectively to N28.1bn and N26.5bn. Annualised RoAE comes to 12.7% in 9M 2021 compared with 10.5% in FY 2020 and 11.0% in 9M 2020.

Capital adequacy ratio (CAR) of 18.8% remains significantly above the regulatory minimum of 15%

We have a Buy recommendation on Fidelity Bank. Our estimates are under review. Current price: N2.66/s.