Fidelity Bank Plc: Presentation of Audited Financial Results to Investors and Analysts

Transcription

1 Fidelity Bank Plc: Presentation of Audited Financial Results to Investors and Analysts April 15, 2011

2 Table of Contents I. Fidelity Overview II. Domestic Macroeconomic Review III. Group Financial Highlight IV. Income Statement Analysis V. Balance Sheet Analysis VI. Strategic Intentions & Outlook

3 Fidelity Overview

4 Our Guiding Philosophy Business Definition: A financial services company that offers a wide range of products and services (financial and non financial) to its customers. Vision: To be number one (1) in every market we serve and every branded product we offer Mission: To make financial services easy and accessible Shared Values: Customer first Respect Excellence Shared ambition Tenacity Compass statements that are very well taken to heart by every staff

5 History and Key Milestones Over 22 Years The Most Socially Responsible Bank in Africa 2008 The African Banker Fidelity incorporated as a Private Limited Liability Company Commenced operations as a Merchant Bank Registered as a Public Limited Liability Company Converted to Commercial Bank Licensed to operate as a universal bank Accepted into and Quoted on the Nigeria Stock Exchange Raised Equity to N22bn (Rights, IPO and Private Placement) Acquired FSB Int l Bank Plc and Manny Bank Plc Resolved all Merger integration issues Raised Equity to US$1bn through GDR & Public Offer th Biggest Bank in Nigeria th in Sub Saharan Africa th in the World in Today, Fidelity is one of the safest and most stable financial institutions in Nigeria. Nominated: Most Improved Bank 2005 Best Fund Manager 2005 Best Stock Offer Mandated by Debt Mgt Office (DMO) in 2006 as: Dealer in FGN Bonds Dealer in Pensioners Bond Dealer in Contractors Bond Best Bond Dealer and Market Maker in 2006, 2008 Appointed Wholesale Dealer in Foreign Currencies CBN Mandated Manager of Sovereign Reserve 2006 CBN appointed Primary Dealer in Treasury Bills and Money Market Instruments

6 Shareholding Structure Diverse Shareholder Distribution Diverse shareholder base with no controlling shareholder; over 400,000 shareholders Shareholder Distribution 80.0% 73.3% No single shareholder owns more than 5% of Diversification of shareholding and absence of concentration has enabled Fidelity to operate under world class corporate governance practices and the professionalization of its Management and corporate culture. 60.0% 40.0% 20.0% 0.0% 19.4% 3.5% 3.1% 0.4% 0.4% Limited Insider Ownership Outsiders 95% Total Insider Holding 5% Insiders have relatively small shareholder ownership and control Fidelity is led by a stable, experienced and well regarded management team that has successfully grown a company that is built on quality and driven by a managed risk philosophy. Since inception in 1987, Management has guided the Bank through several key industry changes and market developments.

7 Domestic Macroeconomic Review

8 Nigeria: Strong Fundamentals, Despite Challenges Nigeria s GDP growth remains very encouraging; higher than BRIC average o The Nigerian economy is expected to grow faster (7.3%) than the Brazilian and Russian, and slightly behind the Chinese and Indian economies in 2011 S T R I C T L Y P R I V A T E A N D C O N F I D E N T I A L A factor driven economy; dominated by oil which has a relatively low contribution to GDP Diverse sources of economic growth, however, exists The business environment still remains challenging amid political uncertainty o Large pool of skilled/unskilled labour and natural resources provide the platform for operating within a sizeable market o Oil is the dominant revenue earner but contributed only about 16% to GDP compared with Agriculture (42.4%) in 2010 o Per capita income has continued to rise in Nigeria in the past decade, driven by growth in new sectors o Key growth sectors include telecommunications, trade (wholesale & retail), hospitality (hotels & restaurants), etc. o Infrastructure problems remain largely unaddressed in various sectors o Cost of doing business in the country continues to be high o Risk of armed conflict remains in the balance o Risks of instability pre- & post-april general elections is reducing after successful National Assembly election. Overall, the convergence of social, political and economic factors have generated both great expectations, opportunities and uncertainty in the Nigerian macroeconomic environment.

9 Macroeconomic and Key Market Indices Stabilizing lending and deposit rates... Volatile Money Market due to tightened monetary policy % Rate % Rate S T R I C T L Y P R I V A T E A N D C O N F I D E N T I A L Inflation Rate Savings Rate 90-day Deposit Prime Lending Rate Source: Central Bank of Nigeria (CBN) NGN/$ Exchange Rate FX rate volatility persists in the interbank market CBN (offical) Inter-bank Mkt Parralell Mkt Source: Financial Market Dealers Association MPR NIBOR Call Source: Financial Market Dealers Association (FMDA) OBB NIBOR 90-day Recent fiscal management challenges are impacting on key macroeconomic variables. Implemented monetary policy measures to contain the impact of fiscal expansion is raising strong consequences in the money, capital and foreign exchange markets. Inflation rate has continued to trend downwards while downward trending lending rate has stabilised due to rising benchmark interest rate.

10 Low Private Credit; but Huge Retail Opportunity N'trillion Huge Govt. borrowing crowding out private sector Private sector credit is being affected by fiscal inconsistency, tightening monetary policy, attractive money market assets and government securities. Post election, revised and targeted fiscal and monetary policy measures is expected to reverse this trend. S T R I C T L Y P R I V A T E A N D C O N F I D E N T I A L N'trillion - Source: Central Bank of Nigeria (CBN) Huge currency in circulation and outside the banking system remains a great opportunity for a focused retail banking strategy. Improving confidence in the Banking Sector is reducing quantity of currency outside banks % 77% 78% 77% 75% 75% 75% 78% % % % 77% Feb Apr Jun Aug Oct Dec-10 Feb-11 Currency in Circulation % of Currency Outside Banking 77% 100% 90% 80% 70% Source: Central Bank of Nigeria (CBN)

11 Macroeconomic Outlook a. The recent upward review of Monetary Policy Rate to 7.5% (from 6.5%) is expected to provide a strong incentive for banks and other market operators to sustain interest in money market activities, particularly interbank. We expect the resulting liquidity tightening to inch up deposit rates/cost of fund in the short to medium term. b. We suspect that the risk of fixed income bubble due to declining prices of fixed income assets would continue to stoke fears of another round of bank capital stress testing. We expect banks to restrain from bullish investment in bonds despite high yields, to reduce potential downside risks. c. We expect industry loan book to shrink slightly further especially in April 2011, to reflect increased opportunities in the money market and tightened monetary policy and lending drawdown conditions. This would also reflect the lull caused by the general elections. S T R I C T L Y P R I V A T E A N D C O N F I D E N T I A L d. Political and expanded budgetary spending is expected to sustain the high level of money supply (M2) and currency in circulation as well as keep inflationary pressures in the near term. We think the CBN will continue to expand its basket of monetary policy measures to ensure that inflationary threat is contained. e. As political activities begin to wane post election, we expect FX demand pressure to moderate. f. We also think that the effect of high crude oil price, fuelled by the crisis in the Middle East, would continue to raise Nigeria s external reserves (N34.91 billion as at April 8th) and Excess Crude Account (currently at US$6.9 billion) to provide buffer to support the Naira. In addition to these, and the strong political will of the CBN to protect the Naira, we expect net FX flow to become positive post election (from H2 2011) with positive impact on the value of the Naira.

12 Group Financial Highlight

13 Sustainable Profitability & Growth Built on Quality GROUP FINANCIAL HIGHLIGHT 12 Months 6 Months Annualised 12 Months 12 Months 12 Months Dec 10 Dec 09 Change Jun Gross Earnings 56,048 34, % 72,274 42,660 24,859 Net Interest Income 26,540 13, % 33,285 22,202 8,854 Other Income 15,536 8, % 20,971 12,532 8,591 Operating Income 42,076 22, % 54,256 34,734 17,444 Profit Before Tax 8,648 2, % 3,815 16,306 5,111 Profit After Tax 6,105 1, % 1,430 13,356 4,714 Cost of Funds 4.10% 8.60% 5.10% 2.10% 4.20% Cost/Income ratio without LLP 71.00% % 47.90% 53.90% RoE (pre-tax) 6.4% 3.10% 2.90% 12.00% 17.00% RoA (pre-tax) 1.8% 0.90% 0.80% 3.00% 2.30% Dec 10 Dec 09 Change Jun Equity 136, , % 129, ,372 30,101 Deposits 326, , % 355, , ,416 Net Loans & Advances 199, , % 230, ,385 71,691 Total Assets 481, , % 506, , ,332 Off balance sheet & Contingencies 80, , % 59,043 49,259 38,441 NPL / Loans 28.10% 28.70% 18.60% 3.00% 8.10% LLP / Loans 19.60% 16.50% 11.30% 3.90% 8.80% Capital Adequacy Ratio 44.00% 44.00% 4O.5% 43.00% 24.00% 12

14 Income Statement Analysis

15 Strong Income Recovery Gross Earnings N'million 75,000 50,000 25,000 24,859 42,660 72,274 34,716 56,048 - Profit Before Tax N'million 18,000 16,306 12,000 8,648 6,000 5,111 3,815 2,054-14

16 Contribution by Business Units Revenue Gross Loans Tresury & Inv. Banking, 19.0% Tresury & Inv. Banking, 1.7% Public Sector, 1.8% Corporate, 46.6% Public Sector, 1.7% Comm. & Retail, 20.2% Comm. & Retail, 32.7% Corporate, 76.4% Total: N56bn Total: N248bn Corporate, 16.1% Deposits Tresury & Inv. Banking, 3.1% Public Sector, 15.3% Comm. & Retail, 65.4% Total: N327bn 15

17 Analysis of Interest Income Interest and Discount Income Net Interest and Discount Income N'million 60,000 50,000 40,000 30,000 20,000 10,000 16,268 30,128 51,303 25,727 40,055 N'million 40,000 30,000 20,000 10,000 8,854 22,202 33,285 13,364 26, Breakdown of Interest Income Placements, 1.0% Finance Leases, 4.1% T. Bills & Investments, 9.3% Placements, 5.2% T. Bills & Investments, 8.5% Finance Leases, 5.3% Placements, 8.1% T. Bills & Investments, 15.6% Finance Leases, 6.5% Loans & Advances, 85.6% Loans & Advances, 81.0% Loans & Advances, 69.8% Jun 2009 Dec 2009 Dec

18 Analysis of Non-interest Income Non-interest Income N'million 25,000 20,000 15,000 12,532 20,971 15,536 Fidelity continues to enjoy stellar performance in non interest income which help to withstand income pressure during restricted lending regime. 10,000 5,000 8,591 8,724 Foreign exchange earning from trade finance activities is a major contributor to earnings. - Breakdown of Non-interest Income Fees has shown resilience even during tight lending regimes. Credit related fees will continue to improve as lending recovers. 120% 90% 60% 30% 0% 14% 17% 20% 15% 40% 75% 49% 43% 52% 52% 34% 37% 34% 8% 12% Other Income Fees & Com FX Income 17

19 Sustained Recovery in Profitability Return on Equity (pre-tax) Return on Assets (pre-tax) 20% 15% 17.0% 12.0% 4% 3% 2.3% 3.0% 10% 5% 2.9% 3.1% 6.4% 2% 1% 0.8% 0.9% 1.8% 0% 0% Sustainable and Efficient Deposit Mix Leading to Improved Interest Margin 18.0% 12.0% 15.7% 10.8% 12.8% 8.6% 14.1% 11.6% 6.0% 4.2% 2.1% 5.1% 4.1% 0.0% Average Cost of Funds Int. Income to Avg. Interest-earning Assets 18

20 Cost Efficiency Dynamics Cost-Income Ratio (without provisions) 80.0% 73.2% 71.0% 60.0% 53.9% 47.9% 49.7% 40.0% 20.0% 0.0% Share of Staff Cost to Total Operating Exp N'million 35,000 29, % 28,000 21,000 48% 16,654 26,964 75% 54% 55% 49% 16,158 50% 14,000 9,395 46% 7,000 25% - 0% Cost of fund has improved due to sustained drive for low cost deposits. Further improvement is expected from on-going focused branch expansion and prudent balance sheet management strategy. Operating expenses arising from inflationary pressures, infrastructure challenges and new branch development has continued to build pressure on cost efficiency. Over 2009 and 2010, 52 branches have been opened. Eighteen branches (18) were opened in 2010; 13 other branches that were started in 2010 would be completed in H Revenue recovery from improved lending activity, increased business volumes and yields particularly from new businesses and the linkage effect from new and existing branches is expected to depress cost income ratio. Operating Expense Staff Cost 19

21 Balance Sheet Analysis

22 Balanced and Sustainable Deposit Growth Customer Deposits Maturity Profile of Deposit N'billion day, 9.6% above 365day, 0.0% day, 18.2% day, 72.2% 20.0 Breakdown of Total Deposits 120.0% Over 72% of deposits as at December is low cost funds compared to 68% as at December and 47% by June % 60.0% 30.0% 0.0% 27.8% 49.7% 41.6% 58.4% 52.8% 22.5% 6.9% 12.8% 6.0% 10.4% 43.4% 35.6% 36.8% 45.7% 49.8% Tenure Savings Demand Deposit from retail sources was 65.4% of total deposits by Dec Fidelity has maintained strong liquidity ratio of 53% and Capital Adequacy Ratio at 44% to cushion the impact of any potential liabilityasset mismatch. 21

23 Lending Recovery with Huge Headroom for Growth Net Loans & Advances Gross Loans & Advances Structure N'billion Overdraft 38% Other Advances 1% Lease Finance 16% Term Loans 45% - Gross Loans = N248bn Net loans grew by 13.5% though tightened drawdown conditions, huge government borrowing and rising benchmark interest rate remain key challenges to lending recovery Currently, the bank has well diversified loan book. Focus is now more on agriculture, telecom, construction, power and energy Loan to Deposit Ratio of 61% and Liquidity Ratio of 53% provide significant headroom loan expansion. Target is to grow Loan Book by 25% by Dec Finance & Insurance, 1.3% Real Estate & Construction, 9.2% Distribution of Loans by Sector Transport & Communication, 22.2% Others, 6.0% Manufacturing, 22.7% Oil and gas, 8.8% Capital Market, 2.7% General Commerce, 27.1% 22

24 Loan Book Quality NPL Ratio & NPL Coverage NPL Ratio 30.0% 20.0% 10.0% 0.0% 8.1% 109% 3.0% 131% Breakdown of Secured Loans Unsecured, 1.1% 18.6% 60% Coverage 28.7% 28.1% 150% 58% 70% NPL Ratio % Loan Prov. to NPL 120% 90% 60% 30% 0% Secured agianst Real Estate, 9.3% Comment Share of working loans improved marginally to 72%. NPL level has stabilized, recovery trend is to be sustained. Target is to bring down the NPL ratio to 4% by end of 2011 through sale to AMCON and other Alternative Assets Buyers, and Loan Recovery Sold N1.6bn qualifying Capital Market Loans to AMCON as at Dec 2010 with net positive impact on P&L. Further sales to AMCON would also be positive on P&L and would release liquidity for trading purposes. Otherwise Secured, 89.6% 23

25 NPL by Sector and Classification (N million) SECTOR LOST DOUBTFUL SUBSTANDARD TOTAL % AGRIC., FORESTRY AND FISHING % FINANCE AND INSURANCE 4,659 1, , % GENERAL 2, , % GENERAL COMMERCE 14, , % GOVERNMENT % MANUFACTURING 1,708 7, , % MINNING, ENERGY & PETROLEUM 2,991 3,036 10,805 16, % PUBLIC UTILITIES AND EDUCATION % REAL ESTATE AND CONSTRUCTION 2,153 1, , % TRANSPORT AND COMUNICATION 3,966 7,096 1,192 12, % GRAND TOTAL 32,756 21,743 14,006 68, % 24

26 Capital Adequacy

27 High Capital Adequacy; Platform for Expansion Capital Adequacy Ratio (CAR) 50.0% 40.0% 43.0% 40.5% 44.0% 44.0% 30.0% 20.0% 10.0% 0.0% 24.0% Fidelity CAR Regulatory Minimum Fidelity Bank CAR has been consistently maintained well above regulatory minimum of 10%. With medium term CAR target of 20%, deploying excess capital to expand business generation capacity would create more value for shareholders Equity / Assets Ratio 35.0% 28.0% 25.5% 25.6% 30.0% 28.2% Medium term Equity/Assets Ratio target is 15% in the next 3-5 years through organic expansion and opportunistic M&A activity. 21.0% 14.0% 13.8% 7.0% 0.0% 26

28 Liquidity

29 Sound Liquidity Position Liquidity Ratio Composition of Total Liquid Assets 75.0% 50.0% 60.6% 62.9% 64.4% 53.7% Govt Bonds, 19% Total Liquid Assets = N175.7bn Short-term Funds, 13% 25.0% Treasury Bills, 18% 0.0% 2008 Jun '09 Dec '09 Dec '10 Interbank Placements, 50% Fidelity LR Regulatory Minimum Net loans constitute 62.5% of earning assets as at Dec compared 57% in Dec Re-allocating operational liquidity in low yielding liquid assets to high yielding assets (loans) will continue to improve margins and earning capacity. Improvement in yield on government securities and interbank lending is contributing to improved Net Interest Income Fidelity Bank is a net-placer of funds in the Nigerian Inter-Bank Market 28

30 Strategic Intentions & Outlook Mid - Long-term strategy Short-term strategy Strengthen distribution capabilities through focused branch expansion strategy Increase operating efficiency through consistent business process improvements to reduce costs and improve customer service Strengthen the bank s role in SME & retail segments in mobilizing cheap deposits to increase market share Short - Mid-term strategy Deepen participation in power, energy, infrastructure, telecom and other fast-growing sectors by leveraging enhanced balance sheet and expanded distribution network. Diversify earning base by developing new products and selling franchised products through enlarged branch network. Look for and acquire underperforming banks with hidden value to ramp up growth. Continuously expand distribution capacities in targeted markets to maintain a leading position Provide unrivalled customer service based on deep segment experience and solid technological distribution base Continue to build a strong consumer finance offering distributed through a wider traditional electronic platform GOAL: TO BE NO.1 IN EVERY MARKET WE SERVE AND FOR EVERY BRANDED PRODUCT WE OFFER From 2013 Fidelity has significant growth potential and is well-positioned to deliver safe growth to its shareholders. 29

31 Fidelity Has A Solid Platform for Quality and Expansion Strong Market Position Strong Management Team and Corporate Culture Strong Corporate/ SME Franchise Sustained Quality Asset Growth Strong Financial Performance and Profitability Sound Risk Management Practice Transparent Corporate Governance Rapidly Growing Distribution Network 30