Fidelity Bank Plc has experienced a significant setback in its asset quality, as revealed by its 9-month unaudited financial statement. The tier-2 lender reported a remarkable 163% year-on-year increase in profit, attributed to an aggressive loan strategy. However, this success comes at a cost, with rising impaired loans posing challenges to the bank’s financial stability.
The bank’s financial statement exposes a 36% expansion in its balance sheet, fueled by an over 82% surge in borrowings, contributing to increased financial leverage. Despite a robust loan and advance growth of 26% year on year, totaling N2.654 trillion, alarming figures emerged in loan provision and impairment charges, skyrocketing by 771.9% to over N32.1 billion in the 12-month period.
The surge in derivative liabilities, particularly interest rate swaps, witnessed an astonishing 1944% year-on-year increase, reaching about N25 billion by the end of the period. Analysts caution that this indicates a losing position for the bank on these contracts, requiring additional funds for settlement.
Analysts at CardinalStone Limited noted a troubling 82% year-on-year spike in Fidelity Bank’s stage 3 loans, attributing it to an increased loan appetite amidst Nigeria’s high-interest rate environment. Despite efforts to bolster its balance sheet size and transition to Tier-1 status through the acquisition of Union Bank UK, the bank faced capital tightening, leading to a private placement that diluted shareholders’ interests.
Equity analysts hold divergent views on Fidelity Bank’s future, with varying recommendations ranging from buy to hold. Futureview Financial Services maintains a bullish stance with a buy recommendation, while CardinalStone analysts adopt a neutral position due to concerns about the bank’s credit quality.
Fidelity Bank’s 2023 growth, marked by a strong loan book, negatively impacted asset quality, reflected in an 82.4% year-on-year growth in stage 3 loans. Despite the strain, the bank’s non-performing loans remained below the regulatory benchmark of 5%.
CardinalStone’s update highlighted the bank’s impressive operating income growth (+101.7%), driven by improved non-interest revenue and net-interest income. However, the rise in non-interest revenue, supported by significant gains in foreign exchange and derivative trading, couldn’t offset the challenges posed by deteriorating asset quality.
While Fidelity Bank’s profit soared by 162.47% to N91.756 billion, raising its earnings per share to N2.87, the bank faces a delicate balancing act between aggressive lending and preserving asset quality under the leadership of Nneka Onyeali-Ikpe, the chief executive officer.