Earnings Report /

Fidelity Bank: FY 19: Good results on strong balance sheet growth and asset quality improvement

  • Net attributable income up by 24% yoy to NGN28bn, 19% above our forecast

  • Loans increased by 5% qoq; asset quality improves with NPL ratio down 1.5ppts qoq to 3.3%

  • Reiterate Buy with TP of NGN2.30 and 43% ETR

Nkemdilim Nwadialor
Nkemdilim Nwadialor

Equity Research Analyst, Financials

Tellimer Research
23 March 2020
Published byTellimer Research

Fidelity’s FY 19 net income rose by 24% yoy to NGN28.4bn, 19% above our forecast (NGN23.8bn) due to better-than-expected net interest income from higher loan book growth. Net interest margin was down yoy, but better-than-expected at 4.3%, while cost/income ratio increased to 73%. 

Loans increased by 5% qoq (slightly below peers) and deposits were up 25% yoy. Asset quality continued to improve with NPL ratio down 1.5ppts qoq to 3.3%. 

Reiterate Buy with TP of NGN2.30 and 43% ETR. At FY 19f PB of 0.2x (77% discount to frontier peers), we find Fidelity’s valuation attractive. We are also attracted to its recent strong loan growth, as well as its growing digital banking franchise. However, the bank’s weak operating efficiency continues to suppress its profitability. In the Tier 2 banking space, Stanbic remains our top stock.


  • Net interest income was up 13% yoy due to a pick-up in loan growth (up 33% yoy), a trend observed in other Nigerian banks, as they strive to meet the CBN’s 65% LDR minimum. By our calculations, Fidelity’s loan-to-funding ratio stands at 80% for FY 19, well ahead of the 65% minimum.
  • Asset quality improvement saw NPL shrink by 1.5ppts to 3.3% as Stage 3 loans fell 25% qoq, driving a 1.5ppts decline in the bad loan ratio to 3.3%. Provisions coverage ratio remained robust at 133% (up 23ppts qoq).


  • Cost/income ratio increased to 73%, mostly attributable to a 25% increase in admin costs. Fidelity’s high operating cost continue to present a downside risk for the bank especially as we expect 2020 to be a particularly challenging year for Nigerian banks due to unfavourable macro (including the impact of Covid-19) and regulatory conditions.
  • Cost of risk increased to 0.4% above our forecast of 0.2%, as the reversals recorded in H1 19 did not extend into H2 19.


  • Continued compression in net interest margin: We don’t expect to see improvement in net interest margin as yields on investment securities and loans are expected to be lower in 2020. 
  • We expect some slowdown in the bank's balance sheet growth in 2020.  

Table 1: FY 19 results summary 

NGNbnFY 19FY 18yoy9M 19qoq
Net interest income837313%5843%
Non-interest income29282%2228%
Total operating income11210110%8138%
Operating expenses827214%5842%
Pre-provision income30292%2330%
Net impairment charge5-4-226%59%
Net attributable profit282324%2132%
Net loans1,12785033%1,0745%
NII margin4.33%4.49%
Cost/income ratio73%71%
NPL ratio3.28%5.69%
NPL coverage133%110%
Source: Company financials