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FOOTPRINTS ON THE SANDS OF TIME

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Nnamdi Okonkwo records superlative achievements in his tenure, thus taking Fidelity Bank Plcto the pinnacle in the highly competitive finance sector

By Amos Adetunji

The operating environment throughout the tenure of Nnamdi Okonkwo, the outgoing chief executive officer, CEO, Fidelity Bank Plc, was a hard nut. From the first six months to the last year of his leadership, the economic environment was highly deleterious.

Half a year into 2014, the oil price at the international market took a dangerous slide and finally crashed in 2015. The following, a major recession threw spanners into the wheel of the nation’s economy. Between 2017 and 2019, economic indices were stunted. And 2020 proved more terrible with the COVID-19 pandemic that almost grounded the economy.

However, Okonkwo, like a genius, developed iron teeth to break the hard nut. He navigated those hectic years and was rewarded with brilliant and superior returns. Today, the story is that of how he started well and ended with a howling success. Within and throughout those years, virtually all the performance metrics were sharply upward. Analysts say it was not the knuckles of luck at work but competence and vision working hand in hand.

They are right. He was not only strategic; he equally executed his chosen strategies flawlessly with disciplined attention to operations while simplifying the way his organisation is structured. He also built and maintained a fast, flexible and flat organisation.

But that was not all. His success secret from all indications, included his skills and wisdom in building the right culture and promoting an environment that champions high level performance and ethical behavior that is integral to making a company an industry. Those initiatives and resounding skills have lifted the bank on to the path of outstanding growth and values. Between December 2013, where immediate predecessor ended his tenure and September 2020, Okonkwo unarguably hit major milestones, building a culture of double-digit profit, and creating a robust balance sheet that set him apart from those behind him since the bank was founded in 1998.  Today, Fidelity Bank has continued to distinguish itself in the Nigerian financial sector through superior service offerings, unique customer experience and sound financial indices. It has remained a clear leader in the digital space with several firsts in the deployment of innovative products, solutions and an assortment of alternative channels that ensure convenience, speed and safety of transactions.

Nine months 2020: How Fidelity Bank expanded profit from slow earnings

In the first nine months of 2020, the operating environment was unarguably intemperate, fraught with uncertainties and hick-ups; and the economy was in bad shape under the claws of COVID-19 pandemic. The negative impacts on corporate organisations were overwhelming. Declining margins, falling market share and stagnant growth were the signals that littered the landscape.

However, some innovative leaders and managers navigated their terrains with better ingenuity for necessary immunity against the storms of time, Nnamdi Okonkwo was one them. He had mastered the art over the years and was handsomely rewarded. Fidelity Bank Plc, Nigeria’s most profitable Tier 2 lender, outperformed the market and leveraged expenses to wrench up the bottom line.

By hauling up net interest income by approximately 29% to N75 billion from N58.246billion, Fidelity Bank showed that it is not what you get but what you make out of it that matters. The first hard nut that posed a challenge to the bank’s management was the difficulty of growing its revenue. The environment became so competitive that the gross earnings grew marginally among the banks.

For Fidelity Bank, the interest income marginally slipped by 8.5 % from N132.558billions to N121.250billion. It was a potential spoiler. This was partly responsible for a slump in the revenue. The bank’s gross earnings dropped year-on-year (Y-o-Y) by -3.74%, from N161.06billion in year-to-date (YTD) September 2019 to N155.03billion in YTD September 2020. This was majorly driven by a -24.77% Y-o-Y fall in fees and commission income, despite the +28.76% Y-o-Y growth in net interest income.

Okonkwo, indeed, was not oblivious of the challenge. He explained that the drop in Gross Earnings was due to the decline in interest and similar incomes caused by lower yields and drop in fee income. “Net fee income declined by N1.3billion largely due to a reduction in FX related income on account of the revaluation gains recorded in H1 2020.”

However, the management was smart enough to snatch victory from the jaws of defeat. After suppressing interest expenses by 25%, driving it down to N57.469 billion from N76.870 billion, its net interest income, which is a guide to how well a bank manages the interest rates it pays for borrowing and lending, jumped seismically by 28.8% to hit Nl75 billion from N58.246 billion in the corresponding third quarter of 2019.

Moreover, the bank’s cost-to-income for the period declined to 66.30% from 71.7% reported in YTD September 2019 but operating income rose Y-o-Y by +3.09% while the lenders’ other operating incomes increased by +20.91%. To deliver the above impressive leaps, a 64.9% in other interest income which increased from N2.558 billion in the third quarter of 2019 to N4.219billion could not be waived aside.

Sequel to the above management dexterity, those potential spoilers were not enough to tame and stop the fortunes of Fidelity Bank from having a positive outlook at a pre-tax level.

With a jump in the bank’s other operating incomes and its ability to rein in operating expenses, it registered a positive pre-tax profit of N21.348 billion against N20.598 billion in the similar time in 2019. The growth in profit before tax, PBT, was majorly driven by a +20.91% Y-o-Y increase in other operating incomes and the increase in other operating expenses that was minimized to +3.09%.

Moreover, a 39% decline in the income tax gave a further boost to the bank’s bottom line as the profit after tax, PAT, inched up by 7.1%. The absolute amount registered hit N20.406billion as against N19.056billion in the corresponding period last year.

The above gallant performance impacted visibly on the bank’s margins. Its pre-tax margin improved from 12.7% in 2019 to 13.7% in the third quarter of 2020. In the same way, net interest margin was lifted to 13.3% in 2020 from 11.8% in 2019. “Our nine months results reflect our resilient business model, particularly in a very challenging operating environment. We worked closely with our customers to gradually recover from the economic impact of the pandemic and the attendant effect of the lockdown,” said Okonkwo.

The bank has continued to outperform both the market and the industry in various dimensions by the way of valuation. Its stock price has appreciated by 42% between September 8, 2020 this year from N1.80 to N2.56 on November 6, 2020 to underscore investors and analysts’ belief in the growth potential of the bank. This positive disposition of investors may not be misplaced. Fidelity Bank’s stock is not significantly more volatile than the rest of Nigerian stocks over the past three months; typically moving at plus /minus 6%. Its weekly volatility has been stable over the past one year.

The bank’s impressive earnings power and its valuation multiples have continued to drive its market performance in the last few years. In the first nine months of 2020, its earnings per share stood at N70 compared to N66 in the corresponding period of last year. This is a 6.1% jump.

The bank is adjudged to have quality earnings as its net profit results are believed by analysts to be a fair reflection of the company’s performance for that period. Its earnings have grown significantly by 21.7% per year over the past five years while its earnings growth over the past year at 60.4% exceeded its five years average of 21.7% and the banking industry which grew at 16.3%.

Like other deposit money lenders, COVID-19 has taken its toll on Fidelity Bank but it has nonetheless managed to fend off some of the worst consequences of strong domestic economic headwinds with the country’s gross national output or GDP shrinking by -6.10% by the end of the second quarter of 2020. The outlook for the bank may seem better in Q4 2020 if the COVID-19 outcome of a gradual economic recovery turns out to be a V-shaped swoosh.

Between 2014 and September 2020: Robust Balance Sheet Position

Between December 2013 when his immediate predecessor ended his tenure and September 2020, Okonkwo unarguably hit major milestones creating a robust balance sheet that set him apart from those behind him since the bank was founded in 1998. The assets skyrocketed from N1.08 trillion at the end of 2013 to N2.58 trillion, a 138% jump.

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 elasticity to its wings in the form of more customer touch points, branches and Point of Sale devices. For Fidelity Bank, it was all of these and more.

The bank reached deep into the business of maturity transformation as its loans to customers also hit the roof top as it increased by 197% from N426.076billion in 2013 full year to N1.27trillion in September 2020. Yet its risk management skill is robust. Its non-performing loans dropped marginally in 2020, from 4.80% in September 2019 to 4.70% in September 2020. Moreover, it has an appropriate level of loan to assets at 49% just as its loan to deposit of 85% is equally believed to be normal. However, its assets to equity ratio at 9.8% is judged to be low.

Asides that, total deposits – a measure of customer confidence – increased phenomenally. Its deposits were up 86% from N806.320billion to N1.498trillion. This should not spring any surprises. The marketing machine of the bank, it would seem, no doubt, worked overtime, growing deposits. 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.

The bank’s equity rose by 60% from N163.455billion to N262.174 billion presently. Meanwhile, 65% of its liabilities are made up of primarily low risks sources of funding.

Fidelity’s balance sheet is believed to be an edge it has over its Tier 2 competitors. According to Rencap, Fidelity Bank has “opportunity to leverage on its balance sheet to improve penetration just as it has leveraged technology to drive revenue.”

It was noted that the bank has improved in cost control and efficiency, although there is scope for further improvements. Most interestingly, Rencap views the bank as having strong risk management practices compared to other Tier 2 peers.

Fidelity Bank equally maintained its leadership as the most profitable Tier 2 bank. From N9.028billion and N7.721billion pre-tax and net profits respectively left behind by his predecessor in 2013, Okonkwo grew the bank’s pre-tax and post-tax profits to hit N30.353billion and N28.425billion respectively at the full year 2019. These achievements are, no doubt, very superlative as the jumps translate to 236% and 268% increase within six years.

What drove Fidelity Bank Plc’s double-digit chain of profit in the last few years? This question continues to reverberate among many industry players, analysts and observers. Truly, the answer to this question is not far-fetched. Like the saying: “a good product sells itself,” Fidelity Bank continues to re-invent itself with unmatched creativity, uncommon innovation and exceptional teamwork that bring out the best in its management and members of staff.

Impressive Valuations and Earnings Power

By valuations, a report in 2017 by Proshare Nigeria, a financial firm, also confirmed the bank’s Tier 2 leadership during Okonkwo’s tenure. It said: “Across our Tier 2 coverage banks, the valuations of three comparable banks are showing an interesting pattern. Fidelity Bank Plc (Fidelity) has pulled away from its peers – FCMB and legacy Diamond Bank, returning 90.48% YTD relative to 0.91% and 30.68% for FCMB and Diamond respectively. Fidelity currently trades at a price-to-book value (P/B) of 0.3x compared to 0.1x for its peers, commanding a premium relative to peers which has widened to 92% from 14.3% in FY 16. Price movement in recent trading appears like FCMB and Diamond are currently playing catch-up.

Fidelity outperformed consensus expectation with ROE of 9.6% compared to 3.3% for Diamond and 3.5% (est.) for FCMB with a higher Net Interest Margin (NIM) and improved asset quality as the key drivers for the better-than-expected result.”

No doubt, shareholders of the bank will not forget Okonkwo who superbly added howling values to their investments. Analysts are forecasting a 16% Return on Equity (ROE) at the end of 2020 financial year. Its earnings power has increased impressively since Okonkwo came on board as its earnings per share indicated over the years.

Analysts believe that Fidelity Bank is good value based on its 2.2x Price Earnings, PE, Ratio when compared with both industry and market of 3.6x and 7.6x respectively. Its PE growth ratio of 0.2x and Price to Book ratio of 0.3x are also adjudged to be good value when compared to the industry’s 0.4x ratio. Its PE ratio of 2.2x times multiple indicates that investors are willing to part with more to own the bank’s stocks. It is difficult not to do so since the bank delivered higher Returns on equity and assets. Its Return On Equity, ROE, of 12.7% and Return On Assets, ROA, of 1.3% are above the industry average. Also, its current net profit margins at 28.5% are higher than last year’s 19.3%.

Its earnings power has continued to yield strongly. The bank’s current dividend yield of 7.78% is higher than the bottom 25% of dividend payers in the Nigerian market at its 3.88%. Moreover, dividend payments have increased over the past decade and are well covered by earnings. The above performance profile has continued to drive its market performance and outperform both the industry daily and on a yearly basis. The bank outperforms both the industry and the market with its 2.4% daily and 40.4% yearly shareholders’ returns compared to the daily industry and market returns of 1.4% and 1.9% as well as yearly returns of 10.4% and 16.4% respectively. Fidelity Bank exceeded the industry which returned 11.4% over the past year and the market with a return of 14.4%. Its five year of 83.6% and 3-year return of 53% exceeded the industry’s 20.2% and 18.8% negative returns respectively.

Fidelity Bank’s earnings of 13.9% per year are forecast to grow faster than the market’s 11% per year. However, its earnings forecast of 13.9% per year is below the saving rate of 14.3%.

A Strategic Leader

To deliver superior performance while building the capacity to do it again and again is the definition of a great organisation and that is exactly what Okonkwo has turned Fidelity Bank to in the last few years. Quite unsurprisingly, the bank has been able to expand growth levels year in, year out. And despite the limiting conditions of operations and other related challenges, Fidelity Bank stands like the rock of Gibraltar, unshakeable and adaptable to new challenges.

The 2017FY was a landmark for the Bank as it returned to the international capital markets and issued a very successful $400m Eurobond; commenced the interim audit of the bank’s financials to improve its governance process and delivered a strong set of results through the disciplined execution of its medium-term strategy.

In 2017, Okonkwo created a 5-year strategic plan and the management led by him has been pursuing this passionately. According to him, the bank is resolutely determined to show it has what it takes to achieve and surpass targets. “We remain focused on the execution of our medium-term strategic objectives and targets while we look forward to sustaining the momentum and delivering another strong set of results for the 2018FY,” the bank said in a statement.

Okonkwo has continued to exhibit some sterling traits of a quintessential corporate manager. He exhibited and demonstrated undisputable knowledge in the fundamentals of business. He has not only demonstrated to be firmly rooted in necessary and relevant strategy but continued to communicate this to the bank’s customers, employees and shareholders with a simple, focused value proposition that is not only rooted in deep, but certain knowledge about his company’s target customers and realistic approach to his own capacities.

Retail and Digital as a Strategic Choice

The bank’s retail strategy is fully complemented by a strong foothold in digital banking. Fidelity Bank’s retail strategy has become a major game changer for the business. This has continued to be buoyed and driven by innovative digital technologies and creative mobile or internet banking products. The bank under him has gained traction in digital banking and driven by new initiatives in the retail lending segment and increased cross selling of its digital banking products. He launched a new digital lending product dubbed Fidelity Fast Loan and deepened lending partnerships with select Financial Technology, (Fintech) companies.

“In line with our digitization drive, we will continue to push for the adoption and migration of customers to our digital platforms and increase our retail banking market share through innovative products and services. Leveraging on our robust electronic banking processes and products. We will continue to deepen our play in the retail and commercial markets, Small and Medium Scale Enterprises (SMEs) sectors,” he said.

Indeed, to remain competitive in Nigeria’s financial services industry, Fidelity Bank is taking advantage of digital technologies to evolve into an inclusive lender and a dominant player, offering innovative solutions well beyond mundane banking services. As a reputable lender that places customers’ needs at the heart of its business, the Bank has continued to expand its service channels through the provision of best-in-class electronic banking offerings.

According to sources within the bank, these solutions are tailored specifically to meet and exceed the aspirations of the Bank’s customers. Recently, Brand and IT journalists reported that the Bank unveiled the new Fidelity Online, a more advanced and user-friendly online banking platform than the previous one with an upgrade which incorporates a new look and additional functionalities. And it makes financial service activities easier and faster for an unmatched customer experience.

With its new responsive design and rich capabilities, customers can conveniently carry out transactions on computers and mobile devices without a token. Some of the innovative features on this platform include fingerprint (biometric) authentication, single sign-on for both web and mobile apps, customizable user profiles and ability to set transaction limits, among others. “We were able to sustain our performance trend on a quarterly basis through disciplined balance sheet management, strategic cost reduction, increased focus on the Corporate, Commercial, SME segments and continued execution of our retail and digital banking strategy,” he said.

Organisation Cultural Innovations

Okonkwo has not only been strategic, but he also equally executed his chosen strategy flawlessly with disciplined attention to operations while simplifying the way his organisation is structured. He also built and maintained a fast, flexible and flat organisation. But that is not all. His success secret from all indications, include his skills and wisdom in building the right culture and promoting an environment that champions high level performance and ethical behavior that is integral to making a company an industry. Those initiatives and resounding skills have lifted the bank on the path of outstanding growth and values. The outstanding fortunes registered over time, may not be farfetched.

Power of Focus

Another fulcrum driving the success of Fidelity Bank under the tenure of the incumbent chief executive is the power of focus Fidelity Bank is in the business of keeping its word and the bank is not leaving in doubt about this. The stakeholders have become used to the “we keep our word” tagline. Without doubt, keeping promises has taken the bank very far since the assumption of office by Nnamdi Okonkwo as Managing Director and Chief Executive.

Okonkwo’s focus has been corporate banking, commercial banking and the Small and Medium Scale Enterprises segments of the banking business. This is in addition to leveraging the value from retail and digital banking. The rewards have been quite handsome as the bank’s results show with strong double-digit growth in Deposits, Revenues and Profitability. That Okonkwo maintained that results is no accident but a result of focus and discipline on how the bank harnessed the potential of its balance sheet, its strategic cost containment initiatives; focused attention to chosen business segments and determined execution of its retail and digital banking strategy.

“As we have communicated to the market, we will continue to focus on redesigning our systems and processes to enhance service delivery, deepen our cost optimization initiatives to reduce operating expenses and cost to serve and enhance our overall risk monitoring capacities to ensure both internal and external risks are identified and mitigated before they crystallize,” he said.

Corporate Social Responsibility, CSR

Okonkwo, a quintessential manager of human and financial resources re-invented Fidelity Bank with his skills and nurtured it to a world class brand. Quite expectedly, he is keeping the image and brand unique untainted, dynamic and mobile. Indeed, he has done creditably well, inspiring others with his deeply ingrained knowledge, skill, professionalism, attitude and depth.

Okonkwo equally helped others to find their voices within and outside his organisation. “Our robust Corporate Social Responsibility (CSR) policy allows us to do this through such focus as education, environment, health, social welfare and youth empowerment. We have performed creditably well in these areas and it gladdens my heart to see what we have done with our unique CSR approach; the Fidelity Helping Hands Programme (FHHP) which is a staff volunteering initiative that combines the individual contributions of staff and that of the bank to fund projects,” he said.

Okonkwo cruises through life and impacts his environment in a most remarkable and positive manner just as he keeps an eagle eye on Fidelity Bank’s interests world-wide. It is therefore fitting to say that Nnamdi Okonkwo has distinguished himself in the corporate world where he bestrides as a thorough-bred professional with unique footprints.

Under FHHP, Fidelity Bank has executed several projects that have directly impacted on the lives of host communities across the country. It built schools, adopted orphanages, renovated hospitals, trained and empowered over 1,000 youths, to name a few.

Beyond FHHP, the bank said it has been “Doing Good” in other ways through Small Medium Enterprises (SME) offering. Through SME, Fidelity Bank supported businesses that would and normally remain unbanked. One of the initiatives to sensitize its SME project, is Fidelity SME Forum on radio that has continued to prove to be a veritable platform for knowledge sharing, mentoring and financial education.

Fidelity has equally contributed heavily to gender equality. In 2018, it registered its presence as it strengthened its gender sensitivity focus by increasing support for businesses owned by women. “We also introduced a training programme that grooms our young women folk to be complete bankers, with sound financial knowledge,” Okonkwo declared.

In the area of unemployment, the bank commenced a scheme that would keep young unemployed graduates who might use their Information Technology skills to perpetrate cyber-related fraud gainfully employed and making positive contributions to society.

“We set up a digital lab, where 24 carefully selected graduates are given the freedom and opportunity to solve corporate challenges, using their IT skills. The result has been quite encouraging,” the bank noted.

According to the bank’s CEO, giving back has now become an integral part of Fidelity, with some staff members personally executing their own CSR projects ranging from providing free health care services to taking up and rehabilitating the homeless and destitute.

The philosophy behind the Fidelity Bank’s “Doing Good Project” may not be farfetched in a society bedeviled by inequality, and high competition. Fostering co-operation, no doubt, is a necessary step towards arresting many societal challenges and nurturing harmonious relationships.

No doubt, any attempt to imagine Fidelity Bank without an accompanying image of Nnamdi Okonkwo is a daunting task for many people. Since 2014, both Fidelity Bank and Okonkwo have enjoyed more acclaim than other banks and MDs dare to enjoy in three decades.

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