Slowly but consistently, Fidelity Bank, a leading second-tier lender is pushing its way to the top.
Apart from pulling its weight in the Nigerian banking sector, it has made an in-road into the international financial market with its acquisition of Union Bank UK.
It posted an impressive first-quarter performance in 2024, with total deposits increasing to N4.7 trillion while profit before tax grew by 120 percent to N17.9 billion.
Background
Fidelity Bank Plc is a full-fledged commercial bank operating in Nigeria, with over 8.5 million customers serviced across its 251 business offices and various other digital banking channels in Nigeria and the United Kingdom.
Focused on select niche corporate banking sectors as well as Micro, Small and Medium Enterprises (MSMEs), Fidelity Bank is rapidly implementing a digital-based retail banking strategy which has resulted in exponential growth in savings deposits over the last 12 years, with over 57 percent customer enrollment on the Bank’s flagship mobile/internet banking products.
Quoted on the Nigerian Exchange as a publicly traded company in 2005, Fidelity Bank Plc began operations in 1988 as a Merchant Bank. In 1999, it converted to Commercial Banking and became a Universal Bank in February 2001. The current enlarged Fidelity Bank is a result of the merger with the former FSB International Bank Plc and Manny Bank Plc in 2005.
Recapitalisation
Through a Combined Offer (Public Offer and Rights Issue), Fidelity Bank is seeking to raise N127 billion to meet the recapitalization mandate of the Central Bank of Nigeria.
The campaign which was launched on June 26, 2024, will close on Monday, July 29 2024.
The Bank is offering 13, 2000,000,000 units of shares to both existing and prospective shareholders to raise the capital.
The breakdown shows that 10, 000,000,000 share units are on offer for prospective investors on the secondary market of the Nigerian Exchange Limited while 3,200,000,000 share units are meant for the existing shareholders via a Rights Issue.
The existing shareholders who are entitled to the Rights Issue have an edge over the prospective shareholders as they will buy the Offer at N9.25 per share while the latter will pay N9.75 per share to buy into the bank.
The minimum subscription for public offer is 1,000 share units (additional units in multiples of 1,000) or N9, 750. Rights Ratio is One Ordinary Share for every 10 Ordinary Shares.
Fidelity Bank stated in the Prospectus to the Offer that proceeds from the capital raise will be spent on upgrading its IT Infrastructure. The fund will help it to boost its business and regional expansion and product distribution channels.
Financial performance
The Bank posted an impressive 120.1 percent growth in Profit Before Tax from N17.9bn at the end of Q1 2023 to N39.5bn for Q1 2024.
Gross Earnings increased by 89.9 percent yoy to N192.1bn from N101.1bn in Q1 2023. The increase was led by a combination of interest income (90.7% yoy) and non-interest income (84.0% yoy). Growth in interest income was primarily spurred by a higher yield environment and strong earning assets base, while the increase in non-interest income was led by double-digit growth in account maintenance charges, FX-related income, trade, banking services, and remittances, supported by increased customer transactions.
“It posted an impressive first-quarter performance in 2024, with total deposits increasing to N4.7 trillion while profit before tax grew by 120 percent to N17.9 billion”
In the period under review, the bank grew Net interest income grew by 89.5 percent yoy to N99.6bn from N52.6bn in Q1 2023, driven by interest and similar income as the yield on financial instruments improved to 14.7 percent from 10.1 percent in Q1 2023 (2023FY: 11.6%).
In line with the steady rise in interest rates through the year, average funding cost increased by 80bps YTD to 5.2 percent. However, NIM came in at 8.8 percent compared to 8.1 percent in 2023FY, as the increased yield on earning assets surpassed funding cost to 15.1 percent from 13.3 percent in Q1 2023 (2023FY: 13.5%).
Similarly, Total Deposits increased by 17.2 percent YTD to N4.7tn from N4.0trn in 2023FY, driven by double-digit growth across all deposit types (demand, savings and term).
Net Loans and Advances increased by 21.2 percent to N3.7trn from N3.1tn in 2023FY.
Return on Investment
The Bank has maintained a consistent dividend payout over the past 15 years, even during the most challenging periods for the Nigerian banking industry.
In the last five years, dividends have moved within the band of + or – 70.0 percent of N0.30 per share with an average dividend yield of 8.20 percent.
International foray
The Bank earlier attracted $40 billion about N58 billion from the African Export-Import Bank to support its acquisition and recapitalization of Union Bank UK as part of its international expansion programme.
Provided in two tranches of $20 million each, the first tranche of the facility enabled Fidelity to part-refinance the acquisition of 100 percent equity stake in Union Bank UK, while the second tranche was used to support its recapitalisation via the injection of additional equity into the acquired bank, as approved by the United Kingdom’s regulator.
With this acquisition, Fidelity Bank is able to birth a new pan-African financial institution capable of providing correspondent banking and offshore banking services to banks in Africa and servicing the banking needs of Africans in the diaspora.
Commenting on the deal, the Managing Director/CEO of Fidelity Bank, Dr (Mrs) Nneka Onyeali-Ikpe, said, “We are very thankful to Afreximbank for supporting our expansionary initiatives for international growth. It is, indeed, the result of a strong partnership between the two institutions over the years that has produced this good outcome. The refinancing of the Union Bank (UK) acquisition by Afreximbank will unlock additional value and help create a scalable and more sustaining service franchise that will support trade businesses in Africa and diaspora banking.”
The acquisition is expected to contribute to Africa’s economic growth and development by increasing intra- and extra-African trade finance and trade flows between Nigeria and the UK, supporting the integration of the African Diaspora into regional and continental supply chains and enabling small and medium-sized enterprises across the continent to improve their export competitiveness and light export manufacturing capabilities.
Rankings
A recent survey commissioned by the Independent Project Monitoring Company Limited ranked Fidelity Bank Plc fourth out of 29 Nigerian banks in Environmental, Social and Governance practices and reporting. The bank achieved a score of 57.73 percent.
Fitch Ratings has revised the outlook on Fidelity Bank PLC’s Long-term Issuer Default Rating (IDR) to Positive from Stable, while affirming the rating at ‘B-‘. The credit rating agency has also affirmed Fidelity Bank’s National Long-Term Rating at ‘A(nga)’ with a Stable Outlook.
In a statement, Fitch said that the outlook revision reflects its, “expectations that the bank’s capitalisation will strengthen in the near term as a result of core capital issuances, including to meet the new paid-in capital requirement of N500 billion for banks with an international licence effective by end-1Q26.”
According to the statement, “Fidelity’s IDRs are driven by its standalone creditworthiness, as expressed by its Viability Rating (VR) of ‘b-‘. The VR balances the concentration of operations in Nigeria’s challenging operating environment, very high credit concentration and high Stage 2 loans against a growing franchise, sound profitability metrics, good capital buffers and reasonable foreign-currency (FC) liquidity coverage.
In acknowledgement of her outstanding impact on global trade, Nneka Onyeali-Ikpe, the Group Managing Director and Chief Executive Officer of Fidelity Bank Plc, was also recognized as one of the honorees in the 2024 Most Influential Global Top 100 Export and International Trade Edition.