Fidelity Bank to slow loan book growth as LDR stands tall at 95%

Nigeria’s mid-tier lender, Fidelity Bank, said that it is contented with its current loan book position and not pressured to create new loans in subsequent periods.

The lender, which has the highest loan- to- deposit ratio (of 95%) in the banking industry, anticipates growth of its loan book to soften in coming quarters.

A dive into the company’s financials showed that loan and advances to customers jumped some 26 percent to N999 billion in the first half of 2019 from N795 billion in similar period of 2018.

Major loan growth were recorded in manufacturing sector ( 51%), transport (21%), agriculture (14%) and oil & gas ( 13.5%), accounting for over 95% of gross loan growth.

Two months back, Fitch Ratings, one of the major credit ratings agencies globally based in New York, faulted the CBN’S minimum 60 per cent LDR directive, saying its credit negative for the banking industry.

Fitch believes the guideline effective September 30, will compel banks who are yet to recover from a surge in bad loans caused by the 2016 recession, to turn on their lending tap to riskier borrowers, putting their asset quality at risk.

“Due to the directive, we have raised our 2019 loan growth forecast to an average of 10 percent for Fitch rated banks from one percent in 2018,” it said in July.

Fidelity Bank saw asset quality improve as non-performing loan ratio trended downwards to 5.4 percent half- year 2019 from 5.7 percent in full year 2018, slightly above the Central Bank of Nigeria (CBN) 5 percent regulatory threshold.

The lender’s net interest margin increased to 5.8 percent in the six months through June 2019, from 5.1 percent in first quarter thanks to betterment in asset yield.

According to analysts at Lagos- based investment firm, Cardinal Stone Partners, in a note to investors, noted that the bank’s funding costs remain sticky at 6.6 percent, despite moderation in the yield environment in second quarter, due to increase in more expensive term deposits.

“Net interest margin, management is of the view that asset yields will likely be pressured in Q3’19 as banks compete on the pricing front to meet the regulatory guideline on LDR. In Q4’ 19, the bank anticipates an uptick in both funding cost and asset yields on the back of expected influx of fixed income maturities.” They said.

Despite the low interest environment, Fidelity Bank grew interest income by 10 percent to N84.3 billion in the review period, from N76.7 billion a year before. Fees and commission income as well as other operating income surged 32 percent and 103 percent respectively.

The bank’s post- tax profit trended to N15.1 billion in the first six months of 2019, 16 percent more than N13 billion reported a year earlier.

The bank’s management says it will continue to pursue organic growth which aligns with its corporate strategy. It noted that it is receptive to other opportunities so far they correlate with business values and potential synergies.

Shares of Fidelity Bank advanced 1.27 percent to N1.60 Wednesday. But it has seen stock price erode 21 percent since January, slightly outperforming banking stock index that has shed 20 percent year-long.