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Fidelity Bank’s Strong Return on Equity Makes it a Solid Investment

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A few months ago, the global banking sector was in turmoil following the collapse of Silicon Valley Bank and Signature Bank in the United States, which prompted fear of a contagion.

Of course, Nigeria is not impregnable to systematic risk and uncertainties as some banks suffered huge impairment on Ghana debt crisis that undermined profit and there are concerns that they may suffer more bad loss if they fail to recapitalise their West African operations.

Banks in Nigeria operate in a challenging environment as inflation has been rising steadily since the first quarter of 2022 on the back of the Russian and Ukraine war and the central bank has been hiking the interest rates to tame inflation.

And higher diesel costs combined with wage inflation have bloated operating expenses which further pressures profit margins.

Despite the global banking turmoil, geopolitical tensions, and an unpredictable macroeconomic environment, Fidelity Bank Plc has delivered a solid return on average equity (ROAE) that makes it a solid investment as the lender recorded double digit growth in all key financial metrics.

Fidelity Bank’s ROAE increased to 15.58 percent in December 2022 from 8.27 percent as at December 2021. A higher ratio means the lender is efficient at generating profit from money that investors have put into the business.

Net interest income (NII) spiked by 60.94 percent to N152.69 billion in December 2022 from N94.87 billion as at December 2021.

The high yield environment had a positive impact on Net Interest Margin, which increased to 6.4 percent from 4.7 percent in 2021  while average funding cost inched up slightly to 4.6 percent from 4.2 percent.

Interest revenues are payments that the bank receives from their interest-bearing assets, and interest expenses are the cost of servicing interest payments to customers on their deposits.

Nigerian banks are beneficiary of a high interest environment that added strength to NII as the central bank intensifies its monetary policy strategy in the face of rising inflation.

A combination of cost containment,  strong growth in revenue, and an uptick in fees and commission income added impetus to the bottom line as profit after tax (PAT) surged by 102.23 percent to N46.23 billion as at December 2022.

“We are happy to report another year of impressive double-digit growth across key income and balance sheet lines. This validates our growth strategy and capacity to deliver superior returns to shareholders,” said Nneka Onyeali-Ikpe, MD/CEO of Fidelity Bank Plc.

Healthy risk asset portfolio

The Bank has an excellent risk management strategy and a solid and high-quality capital position provides room for further growth.

It adopts a holistic and integrated approach to risk management and therefore, brings all risks together under one or a limited number of oversight functions.

Historically, Fidelity Bank has maintained high asset quality and a healthy balance sheet with its Regulatory Ratios well above the minimum regulatory thresholds.

It reported a Liquidity Ratio of 39.6 percent and Capital Adequacy Ratio (CAR) at 18.1 percent compared to the minimum regulatory requirement of 30.0 percentand 15.0 percent respectively. Its Non-Performing Loans (NPL) ratio remained unchanged at 2.9 percent for the year.

Fidelity Bank deposits flows stable

Deposits at Fidelity Bank are stable as the lender continues to be aggressive about lending, which is the single most important responsibility of a financial institution.

Total Deposits increased by 27.4 percent to N2.58 trillion from N2.02 trillion in December 2021, in line with the Bank’s guidance for 2022. The increase was driven by 43.1 percent growth in low-cost deposits (Demand | Savings | Domiciliary), which resulted in improved margins.

“FCY deposits increased by $597m (63.4 percent YoY) to $1.5bn and now accounts for 27.5 percent of total deposits from 19.7 percent in 2021FY, as we continue to harness the benefits of our renewed drive in the export business and the diaspora banking space,’’ said  Nneka Onyeali-Ikpe.

On the back of the impressive performance, the bank has declared a final dividend of 40kobo per share which brings its total dividend for FY 2022 to 50kobo per share.

The sustained low-rate environment since the crisis has resulted in limited investment options for individuals and institutions. It makes holding liquidity as deposits a relatively inexpensive option. This has driven exceptional deposit growth at banks.

Fidelity Bank is a full-fledged customer commercial bank operating in Nigeria with over 7.5 million customers serviced across its 250 business offices and digital banking channels.

The bank was recognized as the Best Payment Solution Provider Nigeria 2023 and Best SME Bank Nigeria 2022 by the Global Banking and Finance Awards.

The bank has also won awards for the “Fastest Growing Bank” and “MSME & Entrepreneurship Financing Bank of the Year” at the 2021 BusinessDay Banks and Other Financial Institutions (BAFI) Awards.

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