Fidelity Bank Plc has encountered a notable setback in its asset quality, according to its 9-month unaudited financial statement. Despite a remarkable 163% year-on-year increase in profit, attributed to an aggressive loan strategy, the tier-2 lender is grappling with rising impaired loans that pose challenges to its financial stability.
The bank’s financial statement reveals a 36% expansion in its balance sheet, driven by an over 82% surge in borrowings, contributing to increased financial leverage. Despite a robust 26% year-on-year growth in loans and advances, totaling N2.654 trillion, concerning figures surfaced in loan provision and impairment charges, skyrocketing by 771.9% to over N32.1 billion in the 12-month period.
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 signals a losing position for the bank on these contracts, necessitating additional funds for settlement.
CardinalStone Limited analysts noted an alarming 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 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, elevating 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.