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Fidelity Bank explores opportunities with N200bn bond
December 28, 2009

Fidelity Bank explores opportunities with N200bn bond

Shareholders of Fidelity Bank plc on Monday approved a special board resolution to raise the sum of N200 billion through a corporate bond issue. The additional funding would be used to explore new opportunities in line with details of the bank’s business. The shareholders also approved the payment of a dividend of 5 kobo per share from the profit realised during the financial year ended June 30, 2009. It was gathered that the bank had realigned its model to tap into the advantages within the domestic economy by emphasising low-cost deposit generation at the grassroots level. This is demonstrated by its branch expansion strategy in recent times and the massive deployment of retail products across different demographic and market segments in the country.

However, the bank’s performance during the period was under pinned by the following: The financial market The market remained challenged by the depressing state of the economy underpinned by weakened capital market, falling oil prices, decreasing foreign reserves, declining capital inflows, galloping inflation and tightening liquidity, all of which initially cast a pall of uncertainty over Nigeria’s economic landscape.

The economy, which was initially assumed to be immune to the global crisis, began to show signs of vulnerability when the foreign exchange market contracted by the end of 2008. Financial performance Chairman, Christopher Eze, told shareholders that the bank’s asset portfolio in the major part of the period under review reflected the board’s decision to remain cautious as a hedge against the rising unpredictability of the domestic financial market. To that extent, the bank’s risk asset creation structure was strengthened and the credit business still remained the focal point of activities.

The result of this strategy was manifested in the financial performance that showed gross earnings of N72.27 billion or 69.41 percent increase over the N42.66 billion recorded in the same period in 2008. “Remarkably, profit before provision on risk assets and taxation was N23.57 billion, up by 30.37 percent from N18.08 billion in 2008.

However, the impact of the exceptional provision on risk assets affected profit after tax, which came down from N13.36 billion in 2008 to N1.43 billion in 2009.” The bank had made a provision of N19.81 billion for doubtful advances and other assets in line with the new regulatory directive of the Central Bank of Nigeria (CBN).

Earnings mix Reginald Ihejiahi, managing director, said the earnings profile of the bank in the last financial year was largely structured around a mix of income lines that were designed to reflect the bank’s growing presence in a number of business segments, products and markets. “This was achieved on the back of the implementation of a set of strategies anchored on our vision to become the first in every market we serve and every branded product we offer,” he added. Indeed, the bank’s interest income grew by 70.30 percent from N30.12 billion in 2008 to N51.30 billion in 2009. However, the effect of the growth in interest income was moderated by a spike in interest expense that rose by 127.32 percent from N7.93 billion in 2008 to N18.02 billion, during the year under review. The chief executive officer therefore explained that interest expense growth reflected the tightening situation of liquidity within the period under review in the face of the challenges in the global economy and the internal operating environment. The bank’s earnings per share (EPS) actually dropped from 45 kobo in 2008 to 8 kobo in 2009. Future outlook The board believes that the adoption of common year end by banks will be challenging for the entire finance industry. “We are not mindful of the new challenges in the marketplace and their possible impact on the delivery of operational targets. Some of these include increasing competition of banks, particularly at the retail end, depressing equity market and heightened market/country risk perception. In trying to confront these challenges and meet the expectations of our shareholders, our strategy would be on strengthening our risk management structure, enhancing our advisory business while consolidating our traditional areas of strength,” Eze noted.

The Business Day Newspaper, Monday December 28, 2009.

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