Fidelity Bank grows PAT by 255% driven by non-interest income, declines in opex/ provisions

Fidelity Bank third quarter 2017 results released on the floor of the Nigerian Stock Exchange showed a remarkable growth on all key headline items. Although pre-provision profits grew by single-digits four per cent on annual basis, Profit before tax PBT grew by 63 per cent to N6.0 billion. From the bank’s released figures the key  drivers behind the strong growth in profit before tax were a 21 per cent drop in loan loss provisions and a 4.0per cent fall in operating expenses. According to the results non-interest income which grew by 24per cent was the key driver behind the single-digit growth.

The growth in non-interest income was mainly underpinned by net foreign exchange gains of N2.3 billion. Income from loans and advances came in flattish. PAT grew by 255 per cent as a result of a 55 per cent reduction in other comprehensive expense.

Following this development in the bank financials profit before tax PBT, inched up by 12 per cent as a of the about 38 per cent decline in loan loss provisions. Although funding income was up by 5 per cent during the quarter a 23 per cent reduction in non-interest income led to 3 per cent decline in pre-provision profits.  Despite the growth in PBT, PAT fell by  42 per cent during the reporting quarter because of a negative result in other comprehensive income when compared to that of the second quarter of 2017.

Analyst at FBNQuest Research in a note on the result said the result “compared with our forecasts, PBT and PAT beat by 165 per cent and 133% per cent respectively,  due to positive surprises in funding income and operating expenses. Non-interest income beat our forecast by around 5 per cent . When annualised, Fidelity Bank’s loan impairment charges for 9 months in 2017 imply a cost-of-risk of 1.3 per cent. This is slightly higher than the 1.0 per cent guidance provided by management on its half year 2017 conference call. Although we expect this to generate some questions from investors on the bank’s conference call, which is billed to hold on Wednesday, we believe the strong earnings will more than compensate.

“Fidelity’s 9 month 2017 profit before tax PBT, of N16.2 billion is already ahead of consensus 2017 PBT forecast of N14.2 billion. As such, we expect to see marked upward revisions to consensus earnings forecast. Although Fidelity Bank shares are up 71.4 per cent compared with the 36.1 per cent return on the index, we still expect to see a positive reaction from the market on the back of the strong set of results. We rate Fidelity shares Neutral. Our estimates are under review” the note said