Fidelity Bank: Experts Say FY 2015 Performance Unexpected | Independent Newspapers Limited
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Fidelity Bank: Experts Say FY 2015 Performance Unexpected

Posted: Apr 8, 2016 at 3:03 am   /   by   /   comments (0)



Financial experts have described the performance of Fidelity Bank in the 2015 financial year as a surprise despite challenges facing the bank and the difficult operating environment of the country in the year under review.


Asset quality trends were encouraging despite the N1.1 billion fourth quarter 2015 provision made on its Oando exposure. Asset quality risks are still high going into 2016 but Fidelity’s numbers have shown significant resilience against its tier 2 peers, most of which have announced profit warnings for the year under review.


According to management of the bank, following the significant losses declared by Oando Plc in 2015, the CBN has been concerned about implications for the banking sector, given cumulative loan exposure to the sector of N200 billion to 250 billion.


Consequently, banks were directed to take additional general provisions (5 per cent of exposure) through equity, while watch-listing the loan under CBN prudential standards. According to management, its N22.4 billion (4 per cent of the loan book) exposure to Oando is still performing.


However, a conservative decision was made to charge the required N1.1 billion general provision to its profit and loss in the fourth quarter 0f 2015 given the loan weight.


Material discussions between banks are under way with respect to meeting a CBN deadline on how proceeds arising from the divestment of Oando’s downstream operations will be used to offset loans among other restructuring terms. Even with the N1.1 billion provision made, Fidelity’s full year 2015 CoR came in at 1 per cent.


According to management, NIM improvement of 90 bpts YoY in FY15 was the result of loan repricing and balance sheet optimisation to higher yielding sectors; lending to the consumer sector increased to 11% in FY15 from 9 percent in FY14. Margins are expected to weaken in FY16, largely on the back of asset yield pressure – 10 per cent of Fidelity’s loans are NIBOR-linked and following the decline in interest rates, loans have been repriced downwards by as much as 450bpts YtD. With no probable respite in NIR, we expect interest income to remain a key revenue driver.


Costs were up 17 per cent year-on-year in 2015 mainly due to regulatory costs and increased spending on marketing, communication and entertainment. Fidelity is guiding for a 5 per cent year-on-year cost decline as management does not expect one-off litigation and corporate finance costs to reoccur in full year 2016.


While asset quality trends were impressive in 2015, experts at Rencap said they still have their concerns and maintain their CoR estimate at 1.7 per cent in comparison to management’s 1 per cent guidance.


“Power and upstream oil and gas loans are management’s key asset quality concerns, and about 75 per cent of the upstream oil and gas book to four names is currently being restructured, with a breakeven price of $35 per barrel and tenor extensions of 12 to 24 months”, the bank said.