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Fidelity Bank Plc Q3 2018: Lackluster Quarterly Performance Despite Lower Impairment Charges.

Net interest income of N20.1billion, down 4.7% q/q; up 5.3% y/y
Non-interest income of N5.5billion, down 12.7% q/q, down 9.4% y/y
Profit before tax of N7.1billion, down 12.4% q/q; up 17.2% y/y
Profit after tax of N6.3billion, down 10.0% q/q; up 15.9% y/y
Fidelity Bank released its Q3 2018 results on Friday, where it reported a 12.4% and 10.0% q/q decline in PBT and PAT respectively on the back of a 4.7% q/q decline in net interest income, a 12.7% q/q decrease in non-interest income and a 2.0% q/q rise in total expenses, despite a 63.0% q/q decline in loan impairment charges.

However, on a y/y basis for the 9M ending 30th September 2018, PBT and PAT were both up 23.6% respectively, attributable to an 8.1% y/y rise in net interest income and a 55.1% y/y decline in impairment charges, which offset the 6.2% decline in non-interest income and the 6.5% y/y increase in total expenses.

Net-Interest Income Dips Despite Credit Growth

Despite a 4.4% q/q rise in net loans, the bank recorded a 4.7% q/q decline in net interest income to N20.1billion, reflective of the lower yield environment we saw in Q3 2018; a trend we have continued to see across banking names under our coverage. However, as cost of funds came in 40bps lower q/q at 6.2%, the Bank’s Net Interest Margin came in 20bps higher q/q to 6.7%.

Furthermore, on a y/y basis, the bank recorded an 8.1% increase in net interest income, as interest income rose 9.1% y/y to N120.4billion, largely due to some reclassified credit related fees of c.N3.8billion into interest income in Q3 2018. This was more than enough to offset the 10.0% y/y rise in interest expenses.

Non-Interest Income Disappoints

On the back of marginal drop in fee and commission income and an even worse 16.1% q/q rise in fee and commission expense and a 32.8% q/q decline in other operating income, Fidelity Bank’s non-interest income dropped 12.7% q/q.

Similarly, on a y/y basis, non-interest income declined 6.2% to c.N16billion, due to the 40.5% y/y drop in other operating income and the reclassification done to net interest income.

Lower Impairment Charges; Higher Operating Expenses

In an apparent trend across banking names, impairment charges were down 63.4% q/q. An action attributed to the improvement in macro-economic conditions witnessed in the telecommunications and oil & gas downstream sectors. The bank’s NPL ratio dropped 10bps q/q to 6.0%. Similarly, Cost of Risk (CoR) also dropped 20bps q/q to 0.5%. Both ratios remain well within the bank’s target range of 6%-6.5% for NPL and 1.25% for its CoR.

Elsewhere, cost to income ratio was up 70bps q/q to 68.4%, riding on the back of a 2.0% q/q increase in total expenses due to a 15.1% q/q increase in personnel expenses and the presence of some AMCON charges taken during the quarter. Notwithstanding, the bank’s cost to income ratio remains within management’s guidance of ˜ 70% in FYE 2018.

Nevertheless, on a y/y basis, impairment charges were down 55.1% to N3.3billion, while total expenses rose 6.5%. The former, coupled with other income lines above, contributed to the 23.6% y/y rise in both PBT and PAT respectively.

Fidelity remains our one of our top picks among tier II names, with a Capital Adequacy Ratio of 17.0% and ROE of 13.9%.

FIDELITY BANK PLC Q3 2018/9M 2018 (YE: DEC) (N millions)

Q3 2018

Q/Q

Y/Y

9M 2018

Y/Y

Interest Income

40,352

-3.0%

7.6%

120,399

9.1%

Interest Expense

-20,242

-1.2%

10.0%

-62,231

10.0%

Net Interest Income

20,110

-4.7%

5.3%

58,168

8.1%

Non-interest income

5,502

-12.7%

-9.4%

15,993

-6.2%

Profit before provisions

25,612

-6.6%

1.7%

74,161

4.7%

Loan Impairment charges

-692

-63.4%

-72.5%

-3,285

-55.1%

Operating Expenses

-17,897

2.0%

7.9%

-50,556

6.5%

PBT

7,052

-12.4%

17.2%

20,064

23.6%

Tax

-776

-27.9%

28.7%

-2,207

23.6%

Tax rate

11.0%

-236.2bps

98.4bps

11.0%

0.0bps

PAT

6,276

-10.0%

15.9%

17,857

23.6%

Source: Company financials, Investment One Financial Services Research

9M 2018 BANKS COMPARISON SHEET

NGN billion (unless stated otherwise)

FIDELITY

FBNH

ACCESS

ZENITH

GTB

UBA

Key Income Statement Figures

Gross Earnings

139.0

441.5

375.2

474.6

337.3

374.8

Net Interest Income

58.2

221.5

122.9

228.5

170.6

150.7

Non-interest Income

16.0

93.2

100.4

135.5

97.2

87.7

Total Expenses

-50.6

-184.5

-144.7

-182.4

-101.8

-149.1

Loan Impairment Charges

-3.3

-76.2

-8.3

-14.3

-1.8

-10.7

Profit Before Tax

20.1

51.34

70.3

167.3

164.2

79.1

Y/Y PBT Growth

23.60%

-7.40%

-3.60%

9.70%

9.50%

1.30%

Dividend (Kobo per share)

nil

nil

nil

nil

nil

nil

EPS (kobo per share)

80

162

69

458

503

172

Key Balance Sheet Figures

Total Assets

1,681

5,348

4,555

5,618

3,213

4,507

Total Liabilities

1,488

4,652

4,082

4,840

2,631

3,998

Total Equity

192

696

473

778

582

509

Key Ratios

Net Interest Margin

6.70%

7.70%

5.30%

9.65%

8.60%

5.90%

Cost of Fund

6.20%

3.60%

5.60%

3.30%

n/a

n/a

Cost to Income

68.40%

59.50%

64.80%

50.10%

38.30%

62.50%

NPL ratio

6.00%

19.80%

4.70%

4.90%

5.60%

7.00%

Liquidity (bank level)

38.30%

42.20%

44.20%

72.00%

n/a

43.90%

Cost of Risk

0.50%

4.50%

0.50%

0.90%

0.10%

0.80%

Capital adequacy ratio (bank level)

17.00%

17.40%

20.30%

21.00%

n/a

n/a

ROE

13.90%

8.70%

17.00%

23.00%

32.70%

15.70%

ROA

nil

1.10%

1.90%

3.40%

5.60%

1.80%

Source: Company financials, Investment One Financial Services Research

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