Fidelity Bank’s strong buffers enough to absorb IFRS 9’s implementation impact – Okonkwo

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Managing Director/Group Chief Executive Officer, Fidelity Bank Plc, Mr. Nnamdi Okonkwo, in this interview on the sideline of its just concluded 2018 Annual General Meeting, AGM, spoke on some of the issues the shareholders raised concerning dividend payout, savings mobilization, cost minimization and the bank’s strategy to grow earnings and profitability, mergers and acquisition among others. Excerpts

YOUR shareholders are clamouring for higher dividend payouts come next year, what is your take on this?

We have noted their demand for higher dividend, but I am assuring them that we will continue to maintain our dividend policy of not paying more than 50 percent of our earnings.

We have consistently paid dividend in the last 11 years. We are very mindful of our capital requirement as our Capital Adequacy Ratio remained at 16.7 percent which is above regulatory threshold of 15 percent, our liquidity ratio stood at 39 percent. We are mindful of future investment as the current dividend policy was to prepare for rainy days.

Dividend policy We want the bank to be here tomorrow as going concern and we need capital to continue to be strong.

What is the bank doing in the area of technology as your stakeholders are demanding for more branches?

We will continue to invest heavily in technology in order to enhance activities through digital channels. We will look into the cost and benefit before we consider the opening of more branches.

Our bank will continue to use technology to drive savings, reduce cost and as well improve earnings. Digital banking gained traction during the year with almost 40 percent of our customers now enrolled on mobile/internet banking products and about 91 percent of total transactions now done on our digital platforms.

You talk about leveraging technology to boost savings; how prepared are you in the area of tackling the hacking of customers’ accounts by fraudsters?

Yes, we are using technology to drive savings; however, our bank is working with other banks in the industry to fight this scourge. Therefore, no bank should toy with cyber security measures because there is a contagion effect, if fraudsters can penetrate one bank.

What it means is that they can also affect other banks. At the Bankers Committee, we have discussed this several times.
Therefore, even at regulatory level, there are certain measures you are compelled to take as a bank. For instance, building a Security Operations Centre and appointing people with certain qualifications and executive level personnel as Heads of Information Technology, IT Security.

Furthermore, we have keyed into Fintechs. Under our five-year plan which was crafted in 2017 and commenced on January 1, 2018, we got one of the big four consulting firms to do a full global analysis of Fintechs and how we can collaborate with them.

Part of our engagement strategy is partnership. This partnership has been on several fronts including the deployment of a solution for a major customer of ours; an airline. We are bankers to an airline that controls about 40 percent of the industry.

Initially, they had challenges with ticketing on the electronic system they were using, and they came to us. Through collaborating with a Fintech, we migrated their entire transactions to the cloud. This has worked so efficiently well in the last one and half years without fail.

How do you assess your financial performance for the just concluded year 2018?

As you can see from the meeting shareholders commended our performance for the year under review despite the unfavourable operating environment. Our 2018 audited financial statement shows a strong double-digit growth in earning assets, customer deposits and revenues. The bank was able to sustain cost discipline with growth in total operating expenses remaining below average headline inflation in 2018.

The gross earnings increased by 4.8 per cent to close at N188.9 billion primarily driven by 22.7 per cent growth in earning assets which led to 4.2 per cent increase in interest income to N153.7 billion and 9.2 per cent rise in net fee and commission income to N31.8 billion.

Commission income From analysis of the bank’ s profit and loss accounts Total Interest Income of the bank grew by 4.2 percent to N153.7billion in 2018 from N147.4billion in 2017. The Cost of Risk fell to 0.5 percent in 2018, compared to 1.5 percent in 2017, while the bank’s Non-Performing Loan ratio dipped to 5.7 percent in 2018 from 6.4 percent in 2017.

Also, the Coverage ratio went up, rising to 110.7 percent in 2018 from 109.4 percent in 2017. The shareholders also commended your debt recovery drive, what is your take?

Yes, we are happy with the commendation as we are putting every effort to maximize their return on investment. We are using their capital to grow the business. We are really pursuing cost minimization strategy as growth in our total operating expenses remained below the average headline inflation rate in 2018.

The debt recovery drive of the bank is quite commendable as the Non Performing Loan, NPL has dropped to 5.7 percent from 6.4 percent in 2017. The total operating expenses also remained below the inflation rate which is quite appreciated and the profit was as well on the increase among other growth performance indicators.

What can you say about your current share price on the Nigerian Stock Exchange, NSE; are you comfortable with the price level?

Also, stock market is still experiencing heavy foreign capital outflows despite the successful elections, what is your opinion on this?

The low share price on the Exchange is not peculiar to our bank. The performance of the stock market is a reflection of the economy as we have experienced sluggish growth for the past four years.

If the economy picks up am sure it will reflect on our share price because our performance indicators are improving. We just got back from London on a no-deal roadshow and the outlook on Nigeria is quite positive.

Indeed, based on some of the sentiments, we were being advised to raise Eurobonds because they want to increase their emerging markets investments especially the fixed income managers.

On the flows, you know European Central Bank raised rates. Constant dynamics With the increase in rates, capital will always follow where margins have just popped up. People generally move money to those areas just the same way when we had our treasury bills going for about 20 percent, everybody rushed in.

So, that is the constant dynamics of inflows and outflows.

What is your future growth plan, do you still intend to grow organically as you have maintained over the years?

Yes, we will sustain our plan to grow organically, however this does not mean if we see good opportunity for acquisition we would not exploit it. Our five-year plan was crafted to be based on organic growth, based on the projections we made.

We also purposefully decided that we will not expand outside Nigeria until after 2022. So, our plans are based on organic growth. We also left a window that allows us to take advantage of emergent opportunities though. When these happens, we will sit down and look at them and go back to our Board to see if we need to alter anything to take advantage of such opportunities or to continue with on the organic growth path.

Also, we are keeping our eyes on our capital, on risk management, on governance and sustained profitability. This explains why, for instance we had enough buffers to absorb the impact of implementation of IFRS 9.

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Godwin Okafor is a Financial Journalist, Internet Social Entrepreneur and Founder of Naija247news Media Limited. He has over 16 years experience in financial journalism. His experience cuts across traditional and digital media. He started his journalism career at Business Day, Nigeria and founded Naija247news Media in 2010. Godwin holds a Bachelors degree in Industrial Relations and Personnel Management from the Lagos State University, Ojo, Lagos. He is an alumni of Lagos Business School and a Fellow of the University of Pennsylvania (Wharton Seminar for Business Journalists). Over the years, he has won a number of journalism awards. Godwin is the chairman of Emmerich Resources Limited, the publisher of Naija247news.

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