December 06, (THEWILL) – Nigeria’s Tier-2 lender, Fidelity Bank Plc, recorded a significant decline in net interest income in its third quarter (Q3) 2021 performance. This could alter the stakeholders’ expectations for the financial year as the result has many implications on the bottom line and dividend.
Net interest income is the difference between revenues generated by interest-bearing assets and the cost of servicing liabilities. For banks, the assets typically include commercial and personal loans, mortgages, construction loans and investment securities. It helps to determine the extent to which a bank engages in the traditional role of creating facilities through loans and advances to the real sector of the economy. It is an important component of the firm’s profits.
The unaudited interim financial statements of Fidelity Bank for the period ended September 30, 2021, which was posted on the website of the Nigerian Exchange (NGX), showed that the bank’s net interest income plummeted by 45 percent from N26.68 billion in Q3 2020 to N14.65 billion in Q3 2021. At the 9-month levels, the figure also showed a decline of 13.4 percent – from N75 billion in 2020 to N64.95 billion in 2021, notwithstanding that loans and advances to customers rose to N1.61 billion in Q3 2021 from N1.27 billion in Q3 2020 a 21.11 percent upward jump.
Although gross earnings rose from N49.27 billion in Q3 2019 to N62 billion in Q3 2020 representing 26 percent, the impact was vitiated by the decline in net interest income with overall negative impact on the profit. It also eclipsed the gross earnings’ positive performance at 9-month level which showed a N20.32 billion rise or 13.11 percent from N155.03 billion at September 30 2020 to N177.35 billion as of September 30 2021.
It, again, dwarfed the positive record in profit after tax (PAT) which rose to N26.51 billion during the 9-month period to September 2021, compared to N20.40 billion in the corresponding period of 2020 – representing 30 percent.
The report further revealed that interest expense rose from N18.16 billion in Q3 2020 to N33.63 billion in 2021or 85.19 percent – a trend that reflected in the nine-month period as of September 30, 2021, which recorded N72.45 billion as against N57.46 billion in the preceding period or 26 percent. Operating expenses, which rose to N9.86 billion in Q3 2021 from N8.97 billion in Q3 2020, or 9.94 percent, was driven largely by three major elements: banking sector resolution cost, deposit insurance premium and outsourced cost.
The rise in the bank’s total net fee and commission income from N3.34 billion to N6.3 billion in Q3 2020 and Q3 2021, respectively, representing 88.2 percent was driven majorly by ATM charges that grew by 89.8 percent from N833 million in Q3 2020 to N1.58 billion in Q3 2021 and accounts maintenance charge, which jumped significantly from N731 million in Q3 2020 to N1 billion in Q3 2021 representing 45.41 percent. Cheque issue fees of N25 million in both Q3 2020 and Q3 2021 recorded the bank’s least income from fees and commissions.
Fidelity Bank’s performance, in the last five years, has been one of mixed fortune, especially as the lender, like its competitors, tries to wriggle out of the COVID-19 pandemic effects, which worsened the hostile operating environment for the financial service industry. The 34-year-old deposit money bank recorded a decline in PAT in 2020 from N28.42 billion in the previous year to N26.65 billion. The result impacted negatively on the gains recorded in 2019 when PAT rose 24 percent from N22.92 in 2018 to N28.42 billion. The bank’s profit performance moderated after the significant result in 2017 when PAT rose by 225.87 percent from N5.4 billion in 2016 to N17.76 billion in 2017. Net interest income also plummeted in 2020 to N87.26 billion or 1.2 percent from N88.34 billion in 2019. Between 2016 and 2020, net interest income rose from N26.43 billion to N87.26 billion or 230.15 percent. Total assets rose from N2.57 trillion to N3.18 trillion as of September 30, 2020 and September 30, 2021 representing 23.7 percent. The bank paid a dividend of 22 kobo per share in 2020.
“If the bank recorded such a huge decline in net interest income, it suggests that it has issues with its lending portfolio or that serious adjustments must have been made along the line. You need to find out the sanctions that the regulatory authorities have imposed on the bank for credit facility violations,” said Owolabi Afolabi, a financial expert. Afolabi told THEWILL that Fidelity Bank shareholders should expect a drop in dividend this year, except there is tremendous improvement in the bank’s net interest income in Q4 2021.
The National President, Progressive Shareholders Association of Nigeria, Mr Boniface Okezie said the only way to reverse such a trend is by the management to devise ingenuous strategies. He told THEWILL in a note that “they need to work hard to post good profit that will lead to paying good dividend. That is my concern as an investor”.
The Corporate Communications Department did not respond to a request for comment.
The Chairman, Trusted Shareholders Association of Nigeria, Mr Mukhtar Mukhtar commended the bank for the Q3 performance, noting that the operating environment has been challenging. “Banking had never been this difficult. Honestly, realising a 7.2 billion Naira PAT is a big feat. We must commend this performance; in spite of the decline, it is still profitable. Secondly, no company can boast of upper figures all the time. Business is a game of profit and loss. Fidelity Bank has been consistent in profits and dividends over the years, so this slight decline will not discourage us,” he said in a note to THEWILL.
Fidelity Bank was among the 10 deposit money banks sanctioned a total of N2.5 billion by the financial regulatory authorities in 2020 for various market infractions. Its share of the sanctions was N893.8 million.
About the Author
Sam Diala is a Bloomberg Certified Financial Journalist with over a decade of experience in reporting Business and Economy. He is Business Editor at THEWILL Newspaper, and believes that work, not wishes, creates wealth.
