August 31, 2022/CSL Research

Fidelity Bank’s recently released its H1 2022 audited numbers showed moderate y/y growth in Pre-tax profit, mainly due to a significant uptick in Interest Income. Interest Income grew 52.9% 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 15.3% in H1 compared with the December 2021 position. Overall, yield on average earning assets improved to 11.5% from 9.4% in H1 2021 and 10.1% in December 2021.

Interest Expense also grew significantly, up 56.1% y/y but was down 10.6% in Q2 2022 compared with Q1. The y/y growth was mainly due to a significant growth in Interest Expense on Term deposits (up 63.5% y/y) and increase in Interest Expense on debts issued and other borrowed funds (up 47.9% y/y). Customer deposits were up 13.1% in H1 compared to December 2021. The bank’s cost of funds declined to 4.0% in H1 2022 compared with 4.5% in Q1 2021. Overall, Net Interest Income grew strongly, up 50.4% y/y to N75.6bn in H1 2022 from N50.3bn in H1 2021, bringing Net Interest Margin (NIM) to 6.4% in H1 2022 from 5.3% in H1 2021 and significantly higher than 4.7% for FY 2021.

Net Fee and Commission Income remained resilient, up 6.8% y/y and 8.5% q/q (Q2 2022 compared with Q1 2022). The Fee and Commission Income lines that showed a y/y increase were ATM charges, account maintenance charge, Commission on fidelity connect, 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 down 37.8% y/y but grew 31.8% q/q. The y/y decline was largely because of a 75.8y/y decline on Other Operating Income due to a Net foreign exchange loss of N1.5bn in H1 2022 compared with a gain of N8.4bn in H1 2021.

The bank reported Impairment Charge of only N1.99bn in H1 2022 compared with N2.3bn in H1 2021, bringing annualised Cost of Risk (COR) to 0.2% in H1 2022 compared with 0.5% for FY 2021. The bank reported NPL ratio of 2.7% in H1 2022 compared with 2.9% in FY 2021.

Operating Expenses grew 46.8% y/y to N62.0bn in H1 2022. The slower growth in Total Operating Income (up 36.7% y/y) compared to growth in OPEX led to a moderate deterioration in Cost to Income Ratio (CIR ex-provisions) to 69.6% in H1 2022 compared with 64.8% in H1 2021.

Overall, Pre-tax Profit was up marginally by 21.6% y/y and 42.9% q/q while Net Profit was up 20.7 y/y to N23.3bn, bringing H1 2022 annualized ROAE to 15.3% compared to 12.5% for FY 2021.

Capital adequacy ratio (CAR) of 19.8% remains comfortably above current regulatory minimum of 15.o%.

The Management proposed an Interim Dividend of 10 Kobo per/share.

We have a Buy recommendation on Fidelity Bank. Our estimates are under review. Current price: N3.19/s.