Strong indications have emerged that Fidelity Bank›s net loan loss write back of N4.8 billion at the end of the third quarter 2019 is the key element of profit improvement so far this year.
Specifically, analysts from the research and investment company, Meristem said recoveries and write-backs remain a key operating strength for Fidelity Bank this year, as net earnings from the core business continue to under-perform.
In the year according to the analysts, the bank has been enjoying write-backs with the reconstruction of some loan facilities.
The lender recorded a loan write-back of N1.45billion in the third quarter, bringing the total write-backs in 2019 to N3.29billion. The write-backs recorded in the year, says
Meristem Research, have been effective at bringing the cost of risk within its 2019 financial year (FY) guidance of 1.25 per cent, bringing the bank›s Return on Equity (ROE) (13.80 per cent) within the reach of its 2019FY ROE guidance of 13 per cent.
Stemming from its objective to foster loan growth in the year, the bank intensified lending efforts, as its loan books hit the N1 trillion landmark for the first time. Its growth strategy comes at a good time when regulatory bodies support the increased need for real sector loans.
Consequently, with a loan to deposit ratio of 96.21per cent, the bank is safe and above the minimum loan to deposit ratio of 65per cent, noted Meristem in a note to clients.
Also, the bank has intensified its funding efforts as deposits increased by 13.99per cent to N1.12trilion.
«We noticed the fast growth in term deposits (+31.59%) as against savings deposit (+9.17 per cent). In our opinion, we believe this helps to reduce the maturity difference between the consumer loans created and funds fueling them.
«Savings deposit has a shorter lifecycle, making them less suitable for funding loans; while debts, although they have a longer lifespan, are more expensive than term deposits. Hence, we believe this is a good medium to pursue in the meantime,» the firm suggested.
According to Meristem Research, prudential ratios remain within bounds from a regulatory standpoint.
For instance, Capital Adequacy Ratio (CAR) stands at 16.40per cent, and liquidity ratio at 32.60 per cent, Non-Performing Loans (NPL) ratio stands at 4.80per cent (vs. 5.70 per cent in 2018FY).
Notably, the bank has exceeded its 2019 loan to deposit guidance (7.50 per cent to 10 per cent) and «we expect to see a slowdown in risk asset expansion in the last quarter as the bank fortifies its growth pace to ensure an impressive result by the end of the year,» the firm noted.
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