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Fidelity Bank 2020 : Leading The Pack In Tier 2

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 In spite of a deleterious macroeconomic environment induced by Covid 19 pandemic headwinds , Fidelity Bank Plc still maintained its leadership among tier 2 banks with its performance metrics comfortably above its peers and remained highly competitive in the industry as a whole in the financial year 2020.

A major challenge was the dilemma of growing earnings amidst the tougher risk environment. . As the environment was becoming more and more inclement ‘, risk taking was becoming very dangerous. too. Yet this is the core and the fundamental nature of their business that is inherent in maturity transformation.

But the management of Fidelity Bank was tactical ;taking the route of caution; it cut down loan-to-deposit ratio to 78% in 2020 from 91% in 2019 .In spite of this , its total loans grew by 17.83% from N1.13trilion to N1.33 trillion in 2020. This is expected to boost its earnings but the situation was very challenging

With its track record in maturity transformation or core banking , Fidelity bank’s gross earnings only marginally succumbed to heavy competitive and pandemic induced pressures by 5.4% registering N206,204 billion from N218, 011bilion in 2019 .This was partly due to its interest income which backtracked by 4.4% , 21% decline in non interest income from N25,262b in 2019 to N19,853b and a whopping amount of credit loss .

The above forces put pressures on the bottom line .However, Fidelity Bank Plc, with deft application of experience and professionalism tackled the inclement terrain and retained its leadership among its tier 2 peers. For its ingenuity , the marginal decline in its gross earning could not unleash any seismic damage on the bank’s fortunes.

To avert a seismic damage , the bank achieved a 21 % growth in net interest income through a 29% Y-o-Y decline in net interest expense. The bank also achieved a growth of a 21% growth in other operating income and a 0.7 Y-o-Y decline in operating expense. 2017 records the highest percentage growth with a 18.57% change while 2020 records the highest percentage decline in gross earnings during the period under review .

After some interplay of forces , Profit before tax (PBT) declined marginally from N30,353B in 2019 to N28,054 B in 2020. The highest percentage growth in PBT by Fidelity Bank in the recent years was recorded in 2017 with a 73.70% change in PBT while 2016 saw the highest percentage decline of 21.13% . Also, its net income as it came down marginally by 6.2% to N26,650 billion compared to N28,425 B in 2019. This is the highest profit reported any among the tier 2 banks in 2020.

Despite the above challenges ,the bank still established its leadership in gross earnings and profitability just as it retained its position as the biggest bank by assets in 2020 among its tier 2 circle . . In terms of revenue generation and profitability ,the bank is closely followed by First City Monument Bank and Union Bank Plc with gross earnings of N199,439B and N160,202 B and profit after tax of N19,611b and N18,672b respectively

To cement its place as the most profitable tier 2 bank, it clinched the best return on equity (ROE), and return on assets (ROA), at 11.07 % and 1.0 % respectively . This is followed FCMB with ROE of 8.6% and ROA of 0.9% . However, that is best ROE figure among tier 2 banks in 2020 financial year. The bank’s return on equity (post-tax) declined marginally to 13.3% in H1 2020 from 13.5% recorded in H1 2019. The highest return on equity of 13.5% was recorded in H1 2019 while the lowest return on equity of 6.1% was recorded in H1 2016 for the review period. Fidelity Bank recorded its highest ROA at 1.44% in 2019 while 2016 saw its lowest return on asset

 Also, with a pre tax margin of 14% and net income margin of 13% , Fidelity Bank stayed above its peers tier in the tier 2 bank category . With a 14% pre tax margin FCMB squared up with Fidelity bank but at post tax margin level FCMB’s 10% figure scored it below Fidelity Bank ..

Fidelity Bank also emerged as the biggest bank by assets in its category or tier 2 circle with a total assets of N 2,758,I48 followed closely Union Bank and FCMB with total assets of N2,191,026 and N 2,058, 394 respectively . A puffy assets level could indicate improved strengths in mopping up transactions, including a better position in maturity transformation- the stuff banks are best suited for. It can also mean that the bank has applied some elastic to its wings in the form of more customer touch points, branches and Point of Sale devices. For zenith, it was all of these and more. Fidelity’s growth in total assets of the bank witnessed an upward swing with 2020 recording the highest percentage growth in total assets over the last six years. Total assets grew Y-o-Y by 30.44% from N2.11trn in 2019 to N2.76trn in 2020. Growth in total assets was caused by a 44.47% Y-o-Y increase in cash and balances with central banks, a 46.85% growth in due from banks, and a 55.89% Y-o-Y growth in other assets

Furthermore , Fidelity Bank remains an impressive wealth creator with its market capitalization of N74.7billion while ,FCMB hits N56billions Fidelity bank’s share price for 2020 was less volatile in 2020 when compared to other financial institutions. At the end of 2020, the bank’s share price increased by 15.07% The month of August recorded the lowest share price while December recorded the highest share price when compared on a month-on-month basis (M-o-M). On a year-to-date (YTD), the share price has grown 3.17% as of 8 February 2021. Current dividend yield is 7.75% Fidelity dividend yield at 7.75% is higher than the bottom25 % of dividend payers in the market but lower that the top 25% of dividend payers in the market 8.98% With low payout of 24% ,fidelity dividend payments are well covered by earning .

The volume of shares traded had a different trend from the share price, volumes traded was more volatile in 2020. It closed the year negative as it declined by 16.13% at the end of 2020. October 2020 recorded the highest volume traded while April 2020 which was the peak of the C0VID-19 recorded the lowest volume traded in 2020. Looking at the YTD performance of volume traded, it has declined even further by 23.63% as of 8 February 2021

.A lot of factors and attractions predispose Fidelity bank’s stock to investors. Fidelity bank has not been significantly more volatile than the rest of Nigerian stocks over the past 3months and its weekly volatility has been stable over the past year . In terms of market performance its 7 day return at 11.2% over performs both the industry and the market at -1.5 % and 0.9% respectively though it under performs them in its one year return at 52.7% compared to the industry 54.7% and the market 72.7% . However its 5year return is impressive at 87.0% compared to the industry 57.5 % and the market 7.9 % .

Fidelity Bank Price to Earnings ratio of 2.8 x is a good value indicating that investors are willing with more money to acquire any extra share of its stock ; its price earnings to growth rate at 0.2X is also good value as analysts say anything below one percent is considered good value. However , its price to book value at 0.3x indicates its share price is selling at discount compared to the industry 0.4x .

No wonder analysts  forecast its   Earnings    to grow significantly   between now and the next three years. Based on  the estimates of five analysts  ,   Fidelity Bank  forecasted annual earnings growth is put at  16.1 %  between one to three years compared to its industry and the market  put at   9.9 % and   10.5%  respectively  This bank’s  forecast earnings is above saving rate of 13.6% , to grow faster than Nigerian market . .Also, its forecast annual revenue growth  is 15.8%   compared to the industry  9.9% and the market   8.7%;   fidelity revenue is forecast to faster than the market  but slower than 20% . Fidelity   Bank in the past 5years has  significant earnings growth , Its past l annual earnings growth  is 21.5%21.5%    compared to the industry   15.3% and the market   9.7%   .

Its current net profit margins, the percentage of it gross earning a company has left over after deducting all expenses , was 23.9 %, asset to equity level 10.1 x is moderate , allowance for bad loans is sufficient at 127127% ,its low risk liabilities at 68 % are made up of primarily low risk sources of funding , loan to assets ratio at 48% , loan to deposit ratio at 78% and level of bad loan at 3.8% are all indicators of its strength and brand equity..

Fidelity Bank’s Balance sheet remained well structured, diversified, and resilient with Total assets significantly increased Y-o-Y by 30.44% from N2.11trn in 2019 to N2.76trn in 2020 and Total equity grew Y-o-Y by 16.62% from N234.03bn in 2019 to N272.93bn in 2020 . The marketing machine of the bank, it would seem is working overtime, growing deposits; that section of the bank’s balance sheet swung up. Total deposit grew Y-o-Y by 38.67% from N1.23trn in 2019 to N1.69trn in 2020 while total loans grew by 17.83% Y-o-Y from N1.13trn in 2019 to N1.33trn in 2020 .This was to be expected from a bank which ‘focuses and channels its resources only on its core corporate and retail banking activities’, activities which require steep marketing capabilities, and in a world where IT is ubiquitous, a firm understanding of delivering tech based services.

Without any doubt, the financial year 2020 was stormy; the COVID-19 pandemic put a lot of pressure on banking sector. Buffeted by the forces of macroeconomic and institutional headwinds induced by the pandemic only few players were in control of their own destiny ; the foundation of the past were shaken and fractured, the industry terrain changed shape faster than some top management could refashion its basic beliefs and assumptions. Consequently , stagnant growth, declining margins and falling market share became the industry’ s competitive challenges.

Under normal circumstances, any increase in earning assets figure should lead to more robust earnings except may the spread between interests earned and interest paid are not quite attractive .This was exactly the fate of all banks in 2020. The challenge of a harsh environment affected their entire operations particularly with low low yield prevailing in the environment . With low return on investments which, no doubt ,was systemic ,an economic wide phenomenon and the general lull occasioned by the pandemic related woes, their gross earnings were badly hit

.The bank suffered a credit loss of N16billion as against a reversal of N5billion in 2019 .This was a major potential spoiler that nearly put a spanner on the impressive past records of the bank. Growth in impairment charges for the period was significant seeing the bank recorded a reversal the previous year. Impairment charges grew Y-o-Y by 379.35% from a reversal of N5.29bn in 2019 to a loss of N15.74bn in 2020. During the period under review, 2020 recorded the highest percentage growth in impairment charges while 2019 recorded the highest percentage decline in impairment charges

.With its new management led by Nneka Onyeali-Ikpe ,some analysts say , hope and glimpses of better returns are palpable on the horizon in the new financial year

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