May 4, 2022/CSL Research
Fidelity Bank’s recently released unaudited Q1 2022 numbers showed a very marginal y/y growth in Pre-tax profit, mainly due to a significant uptick in funding costs which dragged Net Interest Income. Interest Income grew 44.1% y/y, which according to the bank’s Management, was driven by expansion in earning assets and improved yields on government securities. Net Loans to Customers were up 28.0% y/y and 10.1% in Q1 compared with the December 2021 position. Overall, yield on average earning assets improved to 11.0% from 10.1% in December 2021.
Interest Expense on the other hand grew significantly, up 124.3% y/y mainly due to a significant growth in Interest Expense on Term deposits (up 226.9% y/y despite the fact that term deposits were up only 8.1% y/y) and increase in Interest Expense on debts issued and other borrowed funds. The bank’s cost of funds grew to 4.5% in Q1 2022 compared with 2.5% in Q1 2021. Overall, Net Interest Income grew only 4.3% y/y to N30.0bn in Q1 2022 from N24.bn in Q1 2021, bringing Net Interest Margin (NIM) to 5.3% in Q1 2022 lower than 6.3% in Q1 2021 but higher than 4.7% for FY 2021.
Net Fee and Commission Income remained resilient, up 15.6% y/y to N4.8bn from N4.2bn previously. The Fee and Commission Income lines that showed a y/y increase were ATM charges, account maintenance charge, Commission on travellers’ cheque and foreign bills, Commission on E-banking activities, Commission on fidelity connect, Commission and fees on NXP, Commissions on off balance sheet transactions, Letters of credit commissions and fees, other fees and commission, telex fees, collection fees and remittance fees
Other Income (Other operating income and Net loss/gains from financial assets at fair value through profit or loss) was up 5.4% y/y, largely because the bank reported Net gain from financial assets at fair value of N98m compared with a Net loss from financial assets at fair value through profit or loss of N4.7bn recorded in Q1 2021.
The bank reported Impairment Charge of only N205m in Q1 2022 compared with N1.3bn in Q1 2021, bringing annualised Cost of Risk (COR) to 0.05% in Q1 2022 compared with 0.4% in Q1 2021 and 0.5% for FY 2021. The bank reported NPL ratio of 2.8% in Q1 2022 compared with 2.9% in FY 2021.
Operating Expenses grew 12.4% y/y to N25.8bn in Q1 2022. The slower growth in Total Operating Income (up 5.7% y/y) compared to growth in OPEX led to a deterioration in Cost to Income Ratio (CIR ex-provisions) to 71.0% in Q1 2022 compared with 66.8% in Q1 2021.
Overall, Pre-tax Profit was up marginally by 1.9% while Net Profit declined marginally by 0.8% to N9.5bn, bringing Q1 2022 annualized ROAE to 12.6% compared to 14.3% in Q1 2021 and to 12.5% in FY 2021
Capital adequacy ratio (CAR) of 20.1% remains above current regulatory minimum of 15.o%.
We have a Buy recommendation on Fidelity Bank. Our estimates are under review. Current price: N3.80/s.
