September 4, 2023/CSL Research

Fidelity Bank’s recently released its H1 2023 audited numbers showed significant y/y and Q/q growth in Pre-tax profit, driven by significant growths in both Interest and Non-Interest Income. Interest Income grew 39.4% y/y, which according to the bank’s Management, was driven by expansion in earning assets and improved yields on assets. Net Loans to Customers were up 25.1% in H1 compared with the December 2022 position. Growth in Non-Interest Income on the other hand, was driven by foreign currency revaluation gains, trading gains and strong growth in several Fee Income lines.

Interest Expense also grew significantly, up 35.5% y/y and 24.0% q/q (Q2 2023 compared with Q1 2023). The y/y growth was mainly due to a significant growth in Interest Expense on Term deposits (up 48.7% y/y) and savings deposits (up 358.3% y/y). We believe growth in interest expense on savings account is due to the strong growth in the monetary policy rate over the period. Customer deposits were up 23.2% in H1 compared to December 2022. The bank’s cost of funds declined slightly to 4.5% in H1 2023 compared with 4.0% in H1 2022. Overall, Net Interest Income grew strongly, up 42.6% y/y to N107.8bn in H1 2023 from N75.6bn in H1 2022, bringing Net Interest Margin (NIM) to 7.2% in H1 2023 from 6.4% in H1 2022 and 6.3% for FY 2022.

H1 2O23

Source: Company’s Financials, CSL Research.

Net Fee and Commission Income remained resilient, up 63.9% y/y and 2.8% q/q (Q2 2023 compared with Q1 2023) The Fee and Commission Income lines that showed a y/y increase were ATM charges (up 46.6%y/y), account maintenance charge (up 44.2% y/y), commission on e-banking (37.5%). Other Fee and Commission lines that showed strong y/y growth were commission on off balance sheet transactions, Letters of credit commissions and fees, other fees and commission and commission on fidelity connect.

Other Income (Other operating income and Net loss/gains from financial assets at fair value through profit or loss) grew strongly, up significantly to N56.5bn in H1 2023 from N3.4bn. The y/y growth was driven mainly by revaluation gains of N32.2bn in H1 2023 compared with a negative position of N1.5bn in H1 2022 and significant net gains on derivatives amounting to N19.0bn compared with a negative N464m in H1 2022.

The bank reported a strong growth in Impairment Charge, up 901.1% to N19.9bn in H1 2023 compared with N1.99bn in H1 2022, bringing annualised Cost of Risk (COR) to 1.6% in H1 2023 compared with 0.2% in H1 2022 and 0.3% for FY 2022. The bank reported NPL ratio of 3.2% in H1 2023, up from 2.9% in FY 2022.

Operating Expenses grew 36.3% y/y to N84.6bn in H1 2023 from N62.0bn in H1 2022. The stronger growth in Total Operating Income (up 102.9% y/y) compared to growth in OPEX led to a significant improvement in Cost to Income Ratio (CIR ex-provisions) to 46.8% in H1 2023 compared with 69.6% in H1 2022. Ex revaluation gains CIR ex-provisions comes to 56.9%

Overall, Pre-tax Profit grew strongly, up 204.4% y/y and 225.4% q/q while Net Profit was up 166.0y/y to N62.0bn, bringing H1 2023 annualized ROAE to 34.6% compared to 15.6% for FY 2022

Capital adequacy ratio (CAR) of 18.1% remains comfortably above the current regulatory minimum of 15.o%.

The Management proposed an Interim Dividend of 25 Kobo per/share compared with 10kobo per share in H1 2022.

We have a Buy recommendation on Fidelity Bank. Our estimates are under review. Current price: N7.75/s.

Kindly click on the below link to download the full report.

​​​​​​​​​​​CSL Fidelity Bank H1 2023 quick take.pdf​