Investors need not fret over the financial health of Fidelity Bank Plc because the lender has healthy risks asset portfolio and a Non Performing Loans (NPLs) lower than the regulatory threshold.
This means the lender is in good conditions and its adoption of a complete and integrated approach to risk management has yielded fruit.
The NPLs of Fidelity Bank in the nine month period through September was 4.50 percent though higher than 4.0 percent as at December last year, is less than the 5 percent regulatory threshold.
Operating profit increased by 8.60 percent N61.98 billion, driven by contributions from interest income and fee and commission income.
It is not easy taming a rise in NPLs amid a challenging operating environment as a sharp fall in oil price resulted in negative credit cycle that undermined the ability of valued customers to paying interest on loans borrowed from banks. Nigerian lenders are grappling with the impact of the devaluation of the naira and failed fiscal and monetary policies which led to a severe credit crunch.
According to analysts at the Dubai-based investment bank and brokerage, Unity Bank Plc and Skye Bank Plc is closed to insolvent while First Bank Plc’s bad loans and NPLs are spiking. Experts say the recent liquidity crunch in the banking sector has jogged their memories of the financial crisis of 2009 that saw some lenders bailed out.
But unfortunately government is not as buoyant as it were few years ago and the likelihood of a bailout this time around is probabilistic. The ratio of non-performing loans to total credit rose to 11.7 percent at the end of June from 5.3 percent at the end of 2015, the Abuja-based Central Bank of Nigeria, which requires banks keep the measure below 5 percent, said in a report on its website.
Moody’s Investors Service said that Nigeria’s five biggest banks share common credit challenges related to the economic slowdown. Moody’s expects non-performing loans to increase to about 12 percent over the next 12 months.
Despite the impact of a weak currency and severe dollar shortages on the performance of lenders, Fidelity Bank’s capital adequacy ratio of 16.80 percent is within the statutory requirement.
The Nigerian lender’s Net interest Margins (NIM) increased to 7.0 percent in September 2016 from 6.5 percent in September 2015 as increase in average yield on earnings assets outpaced the growth in funding costs.
Fidelity Bank’s operating expenses increased by 8.9 percent, driven by increased advert costs, technology, power (diesel and electricity) and depreciation charge though below the 18.30 percent September inflation figure.
Further analysis of the bank’s financial statement showed earnings was up by 3.0 percent to N110.3 billion, largely on account of 116.7 percent (N4.8 billion) and 8.1 percent N5.1 billion increases in e-banking income and interest income on loans respectively.
Fidelity Bank’s Cost to Income ratio (CIR) moved to 73.30 percent in September 2016 as against 71.60 percent the previous years as operating expenses outpaced operating income
“Our planned reduction in cost to income ratio in 2016FY is challenged by high inflation environment and significant increase in FX denominated expenses e.g. technology costs,’’ the bank said on its website.
Fidelity Bank’s share price was up 0.82 percent to close at N3.80 on the floor of the exchange while market capitalization stood at N23.75 billion.
BALA AUGIE
