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Fidelity Bank: H1 Millstone Drives First-time Interim Dividend
Fidelity Bank Plc recorded an impressive performance in its audited half year (H1) ended June 30, 2022 financial statement that translated into first-time interim dividend payout to shareholders.
The declared 10 kobo per 50 kobo ordinary share in the period under review delights shareholders and it is reflected in its stock price appreciation on the trading floor of the Nigerian Exchange Limited (NGX).
Since August 30, 2022 when the H1 2022 results was announced, the stock price of Fidelity Bank has moved from N3.04 per share to close trading on Friday, September 2, 2022 at N3.40 per share.
However, the declared interim dividend of Fidelity bank is on the back of N25.08 billion reported profit before tax in H1 2022, representing an increase of 21.6 per cent from N20.63 billion in H1 2021.
The bank’s income tax rose by 34 per cent to N1.77 billion in H1 2022 from N1.32 billion in H1 2021 to declare profit after tax of N23.31 billion in H1 2022 from N19.31 billion reported in H1 2021.
The growth in profits was driven by significant improvement in gross earnings and net interest income.
In the period under review, Fidelity bank reported N75.64 billion gross earnings as against N50.3billion reported in corresponding half year results. Increase in Fidelity bank gross earnings was on the account of 52.9per cent growth in interest income to N136.2billion from N89.1billion in H1 2021.
The increase in Interest Income was driven by the improved yield on earnings assets and 14.9 per cent year-t0-date (YTD) expansion in earnings base to N2,546.5 billion.
Net fee income decline
However, net fee income declined by N1.4billion (9.6 per cent) due to N10.0billion (117.9 per cent) drop in foreign exchange gains.
Net Interest Margin improved to 6.4 per cent from 4.7 per cent in 2021FY, due to a combination of improved yields on average earning assets and a decline in average funding cost.
Average yields on earning assets increased by 211basis points YoY to 11.5 per cent while average funding cost declined by 84basis points to 4.0 per cent YoY, which resulted in 50.4 per cent growth in net interest income to N75.6billion.
Though funding cost has trended downward since Q1, interest rate on deposits is gradually ticking up with the recent upward review of the monetary policy rate and market yields.
The bank’s operating expenses increased by 46.8 per cent to N62.0 billion with 62.7 per cent of the cost growth coming from regulatory charges, (AMCON, NDIC) and staff cost.
The bank absorbed the 2021 FY AMCON charges of N18.3billion while expecting a moderation in operating expenses in H2 2022.
Extract from the bank’s balance sheet performance showed an increase in customers’ deposits and net loans & advances as Fidelity bank maintains the leading Tier-2 bank in Nigeria.
According to its half year ended June 30, 2022 result and accounts, the lender’s significant increase in customers’ deposits and net loans & loans lifted total assets in the period under review.
As customer deposits grew by 13.1 per cent to N2.02 trillion as of June 30, 2022 from N2.29 trillion reported in 2021, Net Loans & Advances rose by 15.3 per cent to N1.66 trillion as of June 30, 2022 from N1.91 trillion reported in 2021 FY.
The growth in Fidelity Bank’s total deposits was driven by double-digit growth in low-cost deposits (Demand, Savings, Domiciliary). Low-cost deposits increased by 26.1 per cent Year-till-Date to N1.9 trillion and now represents 83.1per cent of total deposits from 74.5per cent in 2021FY, which explains the drop in funding cost.
Foreign currency (FCY) deposits increased by $497 million or 52.8 per cent YTD and now accounts for 26.5 per cent of total deposits from 19.5 per cent in 2021 FY, as the bank continue to harness the benefits of renewed drive in the export business and the diaspora banking space.
Also, net Loans and advances growth of about 15.3 per cent due to intervention funding responsible for over 32 per cent of the absolute growth in risk assets book.
The interplay between customer deposits and net loans & advances drive total assets to N3.29 trillion as of June 30, 2022 from N3.69 trillion reported in 2021 FY.
Ratios above requirement
Fidelity bank recorded Non-performing loans (NPL) ratio that dropped to 2.7 per cent from 2.9 per cent in 2021 FY, which led to a decline in cost of risk to 0.2 per cent from 0.5 per cent in 2021 FY as asset quality continue to improve.
Other Regulatory Ratios were above the required thresholds with liquidity ratio at 47.0per cent and capital adequacy ratio (CAR) at 19.8 per cent compared to the minimum requirement of 15 per cent.
The audited half-year results and dividend recommendation as Fidelity Bank explained the rationale behind its bid to acquire 100 per cent equity stake in Union Bank UK Plc; a spin-off and former subsidiary of Union Bank of Nigeria (UBN) Plc.
The Central Bank of Nigeria (CBN) had given preliminary approval to Fidelity Bank in its bid to acquire 100 per cent equity stake in Union Bank UK.
Fidelity Bank had entered into a binding agreement to acquire 100 per cent in Union Bank UK Plc, a transaction that will make the London-based retail and wholesale banker a subsidiary of a subsidiary of Fidelity Bank.
The transaction is however still subject to the approval of the UK’s Prudential Regulatory Authority (PRA).
Last December, Union Bank’s core investors – Union Global Partners Limited and Atlas Mara – had reached a Share Sale and Purchase Agreement (SSPA) with Titan Trust Bank (TTB) for the sale of 89.39 per cent of Union Bank’s issued share capital. The agreement came a decade after the initial investment by the core investors in 2012.
Consequently, the transaction also triggered the hive-out of Union Bank UK (UBUK), which was approved by shareholders in an extra-ordinary general meeting on March 29, 2022. This allowed Union Bank of Nigeria’s transition from an international to a national focus.
Managing Director, Fidelity Bank Plc, Mrs. Nneka Onyeali-Ikpe said the acquisition aligned with the bank’s strategic plan of expanding its service touchpoints beyond the Nigerian market as well as providing straight-through services that meet and exceed the needs of its growing clients.
“The diverse service bouquet and business model of Union Bank UK offered a compelling strategy and we hope to build on the existing capacity to create a scalable and more sustaining service franchise that will support the wider ecosystem of our trade businesses and diaspora banking services,” Onyeali-Ikpe said.
UK bank Acquisition
Union Bank UK commenced operations in London in 1983. Its banking services include personal banking, trade finance, treasury management and structured trade and commodity finance.
The latest agreement is the second attempt to sell the Union Bank UK. Union Bank of Nigeria had in early 2020 entered into a share sale and purchase agreement to divest its 100 per cent equity stake in the UK subsidiary to MBU BidCo Limited (MBU), an acquisition vehicle wholly owned by MBU Capital Limited (MBU Capital). MBU was selected as the preferred bidder after a competitive bidding process. However, the completion of the sale then was subject to regulatory approvals from the relevant regulatory authorities in Nigeria and the UK.
MBU Capital is an investment management firm founded in 2013 and based in Mayfair, London. MBU Capital has active interests in financial services, healthcare, education, real estate and technology. MBU Capital (UK) LLP is authorised and regulated by the Financial Conduct Authority.
UBN subsequently hive-out Union Bank UK under a scheme that distributed its entire shareholdings in its United Kingdom’s subsidiary to its shareholders.
At the extra-ordinary general meeting of Union Bank’s shareholders; the meeting considered and approved the proposed divestment of the bank’s entire shareholdings-direct and indirect, in Union Bank UK to all the shareholders of UBN.
In a regulatory filing at the Nigerian Exchange (NGX), UBN indicated that all its equities in UBUK would be distributed to its shareholders pro rata to their existing shareholding interests in UBN, subject to obtaining any required contractual consents and regulatory approvals.
Under the divestment and distribution, the shares to be held in UBUK by shareholders of the UBN who each hold less than 0.2546 per cent of UBN’s issued share capital shall be placed under a trust to be established with Stanbic IBTC Trustees Limited (SITL).
SITL shall be the legal shareholder of record in UBUK’s register, acting as trustee of the beneficial interests of the relevant UBN shareholders.