Last year Fidelity Bank Plc announced the completion of the acquisition of a 100% stake in Union Bank Plc UK, through a press statement sent to Nigeria Exchange Limited (NGX)
The bank noted that the acquisition is aimed at strengthening its “strategic initiatives on international expansion.”
The bank has also shown resilience in its financial performance with Profit before tax (PBT) surging by 131.5% in 2023, reaching N124 billion, also surpassing its 4-year CAGR of 64%.
The bank proposed a final dividend of N0.60 to be paid on May 16, 2024, bringing total dividends for the fiscal year to N0.85, representing about 27% payout ratio.
Looking ahead, the bank has set a PBT guidance of N175 billion for the 2024 fiscal year and dividend payout guidance of 25% – 40%.
This seems good and may improve investors’ confidence and as well provide the benchmark for shareholders and investors to assess the bank’s future performance and make informed investment decisions
But the banks’ foray into international market would mean the need to meet up with the N500 billion capital base requirement by the Central Bank of Nigeria (CBN).
Another area the bank would contend with is its exposures to three of the embattled electricity distribution companies, (DisCos), which are Bemin, Kaduna and Kano.
Infact in 2022, it informed the Nigeria Electricity Regulatory Commission, (NERC) that “They have activated the call on the collateralised shares of Kano, Benin and Kaduna (Fidelity and AFREXIM) Discos and that they have initiated action to take over the boards of these Discos and exercise the rights on the shares.”
Some analysts say despite the sterling performances, the bank, like others,now faces a critical test of navigating the challenging terrain of the new CBN recapitalization requirements.
Specifically, since the announcement in March of the new capital requirement, the financial banking sector has witnessed a cumulative decline in market capitalization, despite occasional rallying of the stocks due to investors running to safety on the heels of hike in the Monetary policy Rate, with the attendant luring of investors to higher yields on fixed income instruments.
Similarly, the bank was not an exception as it experienced some decline in its share price value and over 17% year-to-date (YtD) decrease as at the third week of April.
This indicates a shift in market sentiment likely influenced by the recent regulatory announcement, even as the market sentiment is inherently cyclical and responsive to performance, trends, news, perception, among others.
Considering the regulatory mandate, Fidelity Bank must secure N370.295 billion to meet the new N500 billion capital requirements. The magnitude of this shortfall presents a formidable obstacle that the bank must strategically address to ensure its continued stability and growth.
However, the bank, during an investor earnings call on April 19, 2024, in response to questions, unveiled its strategy for tackling this capital requirement shortfall.
The bank highlighted its proactive stance, revealing that it had obtained approval during the August 2023 Annual General Meeting (AGM) to issue 13.2 billion new shares through a combination of public offers and rights issues, positioning itself ahead of competitors.
According to the Managing Director, Nneka Onyeali-Ikpe, Fidelity bank intends to address this shortfall through a strategic three-step approach:
Firstly, by June of the current year, Fidelity Bank aims to enter the market to raise between N120 billion and N150 billion in fresh capital through a public offer and rights issue. This initial step is anticipated to reduce the shortfall to about N270 billion.
Subsequently, the bank plans to use private and special placements to bridge the gap.
Lastly, Fidelity Bank intends to conduct a second public offer and rights issue, if unable to achieve its target after the private placement.
Overall, the bank said it aims to finish raising the shortfall by the first quarter of 2026.
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However, considering the heightened risk environment, typified by the substantial rise in the cost of risk to 2.6% in 2023 from a mere 0.3% in 2022, alongside a 0.6% uptick in non-performing loans to 3.5%, the analysts are saying that the bank, like, others,may be walking on a tight rope.
Indeed, the bank’s moderate loan growth projection for 2024, set at 10% in constant currency, just marginally higher than the 8% recorded in 2023, signposts a cautious approach considering the anticipated continued elevated risk environment.
Overall, the bank’s declaration of its intention to complete the capital shortfall by the first quarter of 2026 suggests a commitment to pursuing independent growth strategies rather than considering alternatives such as merging with another institution or relinquishing its international license and that is paramount for shareholders and investors.
However, in line with its trend of steady growth, the bank achieved significant milestones in 2023. Commenting on the results, the MD/CEO, Onyeali-Ikpe stated:
“We concluded the financial year with strong double-digit growth across key income and balance-sheet lines, which underpins our capacity to deliver superior returns to shareholders.”
Indeed, analysts say the bank’s performance across key income and balance sheet indicators in 2023 is commendable.
Gross earnings grew by 64.9% year-on-year, exceeding its four-year compound annual growth rate (CAGR) of 39%. This growth was mainly fueled by a 55.5% rise in interest income and a significant 132.2% expansion in non-interest revenue (excluding gains from financial instruments).
According to the bank’s 2023 investor presentation report, the growth in interest income is attributed to a consistent increase in asset yield, alongside a significant 58.3% expansion in the earnings base. Specifically, the average yield on earning assets increased from 12.2% in the 2022 fiscal year to 13.5% in 2023.
But the bank would rather hold close to its chest how it intends to weather the storm of the embattled DisCos, more so as government has started handing some of them to new investors in partnership with states where they operate, as it is yet to respond to the platform’s inquiry.
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