Fidelity Bank Plc (FIDELITYBK: TP 2.16 – BUY) recently held a conference call following the release of its H11’19 results. The following are some of the takeaways from the session with management:
On loan growth, the bank noted that it is comfortable with its current position (+15.8% YtD) and is not under any pressure to aggressively create new loans (LDR: 94.8%). Consequently, management expects that growth in its loan book will be slower in the subsequent quarters, all else equal
Key loan growth sectors were Manufacturing (50.7%), Transport (21.4%), Agriculture (13.9%) and Oil & Gas (13.5%), accounting for over 95.0% of gross loan growth
To drive its loan growth, the bank leveraged on on-lending facilities from development financing intervention funds. This largely supported growth in the manufacturing sector. On-lending facilities accounted for about 23.0% of gross loans
Notwithstanding the aggressive push in lending, asset quality improved with NPL ratio declining to 5.4% from 5.7% as at FY’18.Stage 1 and Stage 2 loans accounted for 74.7% and 19.1% of gross loans respectively. Of the Stage 2 loan book, exposures to the power sector accounted for over 50.0% which were mostly, according to management, restructured loans
On net interest margin (H1’19:5.8% vs Q1’19: 5.1%), management pointed to the improvement in asset yield (H1’19: 13.5% vs Q1’19: 12.6%) as a key driver. Funding costs remains sticky at 6.6%, despite the overall moderation in yield environment in Q2’19, likely as a result of the increase in more expensive term deposits
More so, on NIM expectations for the rest of the year, management is of the view that asset yields will likely be pressured in Q3’19 as banks compete on the pricing front to meet the regulatory guideline on LDR. In Q4’19, the bank anticipates an uptick in both funding cost and asset yields on the back of expected influx of fixed income maturities
Management noted that its result reflected a net impairment write back of N800 million (total impairment writebacks were N5.5 billion), which included measures taken on one of its loan assets. According to them, the affected financial asset recorded modification on its expected cash flows, leading to an impairment write back of N4.0 billion, while a net loss on derecognition of financial assets measured at amortized cost of N4.7 billion was charged on the asset in line with IFRS 9 guidelines. Overall, management assesses the concerned loan as not credit impaired and has, consequently, been moved from Stage 2 to Stage 1
Furthermore, on impairment expectations for the rest of the year, management retains its cost of risk guidance of 1.25% noting the unlikelihood of further impairment writebacks in the subsequent quarters
On costs, management notes that these were driven by higher staff, regulatory (NDIC and AMCON) and advertising expenses. The higher regulatory charges reflect the growth in the business, notably with respect to deposits and total assets.
On overall corporate strategy, management highlighted its preference for organic growth, in line with its 5-year strategy. However, it noted that it is open to considering other opportunities, such as business combinations, in as much as such strategies align with its business values and the potential synergies are obvious.