Fidelity Bank’s earnings spike on increased Yields on assets
Fidelity Bank Plc’s first quarter earnings has spiked on the back of increased yield on assets as the lender continues to garner momentum amid a tough operating environment.
For the first three months through March 2017, the Banks’s gross earnings increased by 25.86 percent to N40.84 billion from N36.36 billion the corresponding period of 2016.
The growth at the top line (profit) was driven by a combination of increased yields on earning assets and an absolute growth in the volume of earning assets which led to growth in non interest income.
Total interest income increased by 24.10 percent to N36.30 billion in the period under review from N29.20 billion the previous year; thanks to a 28.80 percent growth in interest income on loans and advances to N26.79 billion in March 2017 from N20.79 billion as at March 2016.
Interest expense rose by 50.20 percent to N19.67 billion in March 2017 as against N19.67 billion the previous year; due to the high interest rate environment.
Also, interest expense on customer deposits increased by 58.0 percent to N15.90 billion in March 2017 N10.0 billion the previous year.
Expectedly, net interest income inched up slightly by 2.80 percent to 16.55 billion in the period under review as against N16.10 billion the previous year.
Net interest margins improved to 6.9 percent in March 2017 from 6.4 percent as at December 2016 on account of increased yields on earning assets to 15.1 percent in March 2017 from 12.7 percent in December 2016.
The yield on earning assets has consistently inched up since half year of 2016, as it grew by 2.4 percent to 15.1 percent in the first quarter of 2017.
Fidity Bank’s average funding costs also grew but at a slower rate to 7.5 percent from 5.8 percent in line with the higher rate environment.
Funding costs increased in the first quarter of 2017 as the increased yields on government securities continue to spike deposit rates upwards.
Fidelity Bank’s E-banking income dropped by 21.2 percent year on year; largely driven by the stoppage of international transactions on its naira denominated cards.
Normalised E-banking income increased by 19.6 percent to N0.34bn Quarter on Quarter, resulting in a high profit margin of 76.0 percent from 35.8 percent in the last quarter of 2016.
Fidelity Bank’s pretax profit grew by 20.54 percent to N4.84 billion in March 2017 compared to N4.0 billion the previous year; driven by the N0.5 billion growth in net interest income and N1.7 billion decline in total operating expenses.
However, operating income declined by 3.50 percent to N20.77 billion in March 2017 from N20.04 billion as at March 2016. The decline was due to reduction in income from electronic banking.
The Bank’s cost optimization strategy paid off as operating expenses reduced by 10.40 percent to N14.36 billion in March 2017 as against N16.0 billion as at March 2016.
The drop in operating cost was driven by a decline in over 60 percent of the lender’s operating expense lines in the first quarter of 2017 with staff cost, depreciation, regulatory cost and technology accounting for about 80 percent of the decrease.
Total assets increased by 1 percent to N1.310 trillion in March 2017 from N1.29 trillion in the period under review. The slight increase in assets was due to reduction in treasury bills and bonds.
Fidelity Bank’s net loans and advances to customers grew by 23.77 percent to N730.44 billion in March 2017 from N590.13 billion the previous year as the lender remained cautious of increasing its exposure in selected sectors of the economy.
In absolute terms, growth was driven principally by the Downstream Oil & Gas Sector, Manufacturing, Government and Construction Sector etc.
Cost of risk improved marginally to 0.4 percent in the first quarter of 2017 from 0.50 percent the previous year. FCY loans now constitute about 43.7 percent of the lender’s total loans from 44.4 percent in full year 2016.
Total deposits increased by 0.9 percent to N800.2 billion due to 5.6 percent (N8.7 billion) and 0.4 percent increase in savings and demand deposits respectively.
Fidelity Bank’s low cost deposits now constitute 79.4 percent of total deposits from 78.7 percent in full year2016; however the high interest rate environment has led to a higher average funding cost.
Savings deposits grew by 5.6 percent year to date which contributed significantly to the growth in total deposits.
The growth was as a result of the disciplined execution of the bank’s retail banking strategy and improved cross-selling of its e-banking products.
Retail low cost deposits grew by 3.8 percent year to date, while the 16.7 percent year to date drop in retail risk assets was due to loan pay downs in the first quarter in line with the asset repayment cycle and recoveries on Non Performing Loans (NPLs)
The Nigerian lender’s cost to income ratio (CIR), a measure of profitability and efficiency, improved to 72.0 percent in the period under review from 77.1 percent in last year as the drop in operating expenses offset the impact of weak operating income in the first quarter of 2017.
Fidelity Bank’s NPLs improved to 6.1 percent in March 2017 from 6.6 percent in full year 2016 due to a 7.1 percent drop in absolute NPL figures and the growth in the loan book.
The decline in absolute NPL volumes was primarily from General Commerce, Transport, Retail and Real Estate sector which accounted for over 85 percent of the decline.
Coverage ratio improved to 90.9 percent in the first quarter of 2017 compared to 83.5 percent reported in full year of 2016 while performing risk assets grew by N16.3 billion in absolute terms.
Fidelity capital adequacy ratio (CAR) declined to 16.7 percent in March 2017 from 17.2 percent as at December 2016; however, it still remains well above the regulatory minimum requirement of 15.0 percent.
“Excluding the N19.1 billion charge the bank’ Tier 1 capital being the excess charge for exceeding our single obligor limit, our CAR would have been 18.3 percent as at the end of Q1 2017. Based on the principal and interest repayment schedule, the loan would be below our single obligor limit before the end of this financial year,” the company said in in its first quarter consolidated financial statement.
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