Fidelity Bank’s half-year profit surges 166% amid forex reforms, interest rate hikes

Fidelity Bank Plc turned in its biggest first-half net profit for the six months to June, riding on the wave of upward interest rate adjustments and a dramatic weakening of the naira by the Nigerian authorities.

Banks in Africa’s largest economy have been posting record profits since about mid-year 2022, helped by the central bank’s dogged resolve to keep increasing the reference interest rate in order to rein in inflation, a push allowing lenders to charge more for loans & advances.

The government’s policy is equally enabling lenders to earn big from loans denominated in foreign currencies, especially the US dollar.

Nigeria’s hawkish monetary policy stance mirrors a global trend noticeable across many central banks as the world confronts an unprecedented cost of living crisis.

European markets like the UK, Italy, Spain, Hungary, Sweden and Lithuania are slamming windfall taxes on banks reaping excessive profit from the move, as high as 60 per cent in the Czech Republic in addition to its 19 per cent corporate tax rate.

But lenders in Nigeria are seeing a big new boost to profit. The new administration led by Bola Tinubu allowed the naira to weaken by 40 per cent in the middle of June as part of the reforms aimed at winning investors back and achieving a convergence between the official and the black-market exchange rates of the dollar.

For lenders having some of their loans denominated in the dollar, that has been a boon.

FBN Holdings’ half-year profit after tax more than trebled to N187.2 billion, while that of Stanbic IBTC Holdings climbed by 121.5 per cent, buoyed by foreign exchange gains.

Fidelity Bank’s gross earnings for the period rose roughly by 60 per cent to N247.1 billion, according to its audited earnings report issued on Friday.

Net interest income, which accounts for the difference between what banks charge for loans and how much they pay to savers, grew 42.6 per cent. The lender’s loan book expanded by one-fourth during the period compared to the year ended 31 December, 2022.

Significantly, credit quality deteriorated within the period, causing the bank to set aside roughly N20 billion as credit loss expense, more than ten times the cash it allocated to that purpose a year ago.

“As at 30 June, 2023 gross loans and advances were N2.746 trillion (2022: N2.196 trillion) comprising local and foreign denominated loans against which total loan impairment of N98.919 billion (2022: N80.548 billion) was recorded,” said independent auditors Deloitte & Touche.

Other operating income rose to N33 billion from N2.5 billion, drawing strength from unusual net foreign exchange gains, which contributed 97.3 per cent of that income.

READ ALSO: Fidelity Bank records stellar performance in FY 2022; declares total dividend of 50K per share

The financial institution also reported a 2,607 per cent increase in Net Gains from Financial Assets at Fair Value through Profit or Loss, which came to N23.4 billion.

Profit for the period stood at N62 billion compared to N23.3 billion.

Fidelity Bank’s shares appreciated by as much as 9.9 per cent in early trading in Lagos after the financial report was released.

In August, the bank announced following an extra-ordinary general meeting it would raise fresh capital by offering 10 billion shares for subscription through a public offer and 3.2 billion through a rights issue on the basis of one new share for every ten held by existing shareholders.

Fidelity Bank’s capital adequacy ratio fell to 16.1 per cent as of 30 June from 18.1 per cent at the end of last year. That was just above the 15 per cent minimum statutory requirement.