Fidelity Bank Nigeria Plc has stayed afloat by remaining profitable despite grim economic conditions following the sharp and elongated decline in oil price as the lender is aggressive about lending.
Fidelity recorded significant stride in interest on loans and advances while contemporaneously pursing the strategic objective of adding value to shareholder’s wealth as net interest income increased by 17.09 percent to N31.62 billion in the first half of the year, from N26.84 billion, last year.
Net interest income and similar charges grew by 2.03 percent to N57.16 billion in June 2016 as against N56.02 billion as at June 2015. Interest on deposits fell by 12.50 percent to N25.53 billion in June 2016, which means the bank is efficient in managing its funding costs.
Despite a slowing growing economy crimping the growth potentials of lenders, Fidelity recorded a profit after tax of N5.58 billion, lower than the N8.21 billion recorded the previous year.
Fidelity is not the only financial institution in Nigeria navigating the stormy sea as four out of 8 lenders that have released half year results fell off the cliff given lower profits.
The sudden drop in oil price by more than 50 percent since 2015 and dwindling government revenue have culminated in rising non performing loans and spiraling loan loss expense as major oil companies defaulted on loans.
Many lenders had to recognize irrecoverable debts as impairments, a situation which resulted in huge loan loss expense.
Analysts fret that with a GDP contraction of 1.8 percent in the first quarter of the year, rising inflation (16.50 percent), rising job losses in the private sector, unpaid salaries in the public sector and naira devaluation by 30 percent, will all conspire to weaken asset quality in other areas.
“We think the sectors that could see the most deterioration include general commerce, individual/consumer lending, manufacturing and construction/real estate,” said Adesoji Solanke, former analyst with Renaissance Capital Limited, in a recent note to BusinessDay.
Analysts however say there is light at the end of the tunnel as the full implementation of the 2016 budget will help stimulate the economy and reinvigorate banks as government seeks to spend it way out of a recession.
The International Monetary Fund (IMF) said the economy may contract by a further 1.80 percent by the end 2016.
Government has proposed a N6.1 trillion, a fiscal plan that may soften the downturn. The country intends to borrow N2.2 trillion to help bridge the budget gap.
A cursory look at the financial statement of Fidelity shows loans to deposit ratio moved to 85.68 percent in June 2016 as against 71.91 percent in June 2015. This means the lender is aggressive about lending.
Loans and advances were up by 24.14 percent to N711.14 billion while deposits from customers moved to 4.18 percent to N829.92 billion.
There is light at the of the tunnel for Nigerian Banks since analysts expect the adoption of a flexible exchange system will culminate in FX gains and higher returns on government securities.
Fidelity has N31 billion in market capitalization while shares outstanding stood at N28.97 billion.
Source : BusinessDay