The Tribune

By NEIL HARTNELL

Tribune Business Editor

FIDELITY Bank (Bahamas) is "comfortable" with projections that its 2012 full-year net income will exceed last year's $3.844 million, yesterday telling Tribune Business it expected its bottom line to increase quarter-over-quarter throughout this current financial year.

Anwer Sunderji, its chief executive, told this newspaper that the BISX-listed bank harboured the "expectation" that its net and total comprehensive income would breach the $4 million mark for the 12 months to end-December 2012, following a first quarter that puts it on track to exceed $5 million.

"We're comfortable that our net income will exceed last year's barring any unforeseen circumstances," Mr Sunderji said. "We expect each quarter this year to be better than the previous quarter, and we're hoping that the second quarter will be better than the first quarter."

Adding that "preliminary indications are that we are on target for the second quarter", which ends this week, Mr Sunderji said the initial numbers for that period and year-to-date "look very good". When asked if the BISX-listed bank was likely to break the $4 million net income mark in 2012, he replied: "That's our expectation."

Fidelity Bank (Bahamas) could well exceed that threshold, if it continues its 2012 first quarter trends and matches predictions that net income, quarter-over-quarter, will rise throughout the year.

For the three months to end-March 2012, Fidelity Bank (Bahamas) saw net income increase 28.5 per cent to $1.364 million, compared to $1.061 million for the previous year, with growth largely stemming from a 16.4 per cent interest income rise to $7.438 million.

The interest income growth was driven by a combination of 4 per cent loan book growth, the portfolio ending the 2012 first quarter at $253.47 million, and higher interest yields/margins generated by Fidelity Bank (Bahamas) move into consumer loans.

Meanwhile, writing in Fidelity Bank (Bahamas) 2011 annual report, Mr Sunderji targeted a 20 percentage point improvement in the bank's efficiency ratio by the start of 2014. And he is aiming to almost double two other key ratios - Return on Equity (ROE) and Return on Average Assets (ROA) within the same timeframe.

"The Bank's efficiency ratio, which compares non-interest expenses with revenue, improved to 70 per cent but is still short of our target of 50 per cent," Mr Sunderji told shareholders.

"Growing revenues and a flat expense base will help in reaching this target over the next two years."

As for ROE, Mr Sunderji said Fidelity Bank (Bahamas) was seeking to increase ROE or the Return on Average Shareholder Funds from an "acceptable" 10.3 per cent in 2011 to "around 20 per cent over the next two years". ROA was also targeted for improvement, this time from 2011's 1.2 per cent to 2 per cent, over the same time period.

Noting Fidelity Bank (Bahamas) transition from being almost a pure mortgage lender to one with a diversified loan portfolio, Mr Sunderji told shareholders its strategy had been to "de-emphasize" real estate lending and "increase exposure to higher margin consumer loans".

As a result, mortgage loans dropped by 8 percentage points as a share of the bank's total loan portfolio, ending 2012 at 54 per cent, while consumer and other loans expanded to 46 per cent of the total.

"This trend is expected to continue in 2012," Mr Sunderji wrote. "In summary, greater diversification, higher margins and better asset/liability matches associated with the new lending strategy have contributed to higher earnings and lower financial risk."

Speaking to Tribune Business yesterday, the Fidelity Bank (Bahamas) chief executive said the decision to "reposition" the institution, and turn its smaller, nimbler size into an advantage, was continuing to bear fruit despite the lingering effects of the recession.

He added that Fidelity Bank (Bahamas) had realised some two years ago that mortgages and real estate loans, long regarded by Bahamian commercial banks as a relative 'safe haven' due to the physical collateral that supported them, had become a much riskier proposition.

'We've repositioned the bank and are continuing on the same trajectory," Mr Sunderji told Tribune Business. "We're not a large institution; we're a small institution, and typically small institutions can respond much quicker to circumstances than larger institutions can.

"Despite the challenges in this environment, we've been able to reposition ourselves and benefit from whatever strategic moves we can make."

Revenue (interest income) growth was key, Fidelity Bank (Bahamas) had decided, because as a small institution it could not keep cutting costs forever as a means to restore desired profitability levels.

"We've realised that lending on real estate is inherently more risky than we thought before," Mr Sunderji told Tribune Business. "We reached that conclusion some two years back, and realised we had to expand our margins and control our risk, and that managing costs was not the way to go forward.

"We had to increase revenues sufficiently, as in a small institution there's only so much cost-cutting you can do."

Mr Sunderji added that Fidelity Bank (Bahamas) was "hopeful" its still-closed branch at Tonique Williams-Darling Highway's Summerwinds Plaza would re-open later this year. It was located inside the former Robin Hood store, which ceased trading earlier in 2012, forcing it isnto closure.

Noting comments from the Plaza's landlord, Tall Pines MP Leslie Miller, that he planned to either re-open the Robin Hood site himself or find partners to do it, Mr Sunderji said: "We're very hopeful that the store will re-open. It's simply too large a food store to be closed permanently. We're optimistic that before the year is out we'll be back in business at that location."

He added, though, that Fidelity Bank (Bahamas) had suffered no loss of business as a result of the branch's enforced closure.

"We have relocated our staff, and while location is important in terms of customer convenience, people are more important," Mr Sunderji said. "

"Despite the disruption, the team has done extremely well and our business has continued to grow."

Fidelity Bank (Bahamas) increased loan loss provisions more than ten-fold during the 2012 first quarter, growing them from $31,006 to $312,754. Mr Sunderji, as he did in the 2011 annual report, indicated this was due to a combination of oversupply of distressed properties, the difficulty and length of time taken to sell them, and the absence of qualified buyers.

"We're cleaning up the balance sheet and recording possible losses where we can," he added. "There's a serious overhang of delinquent properties the bank has for sale, and our focus is to move the delinquent properties we have and loans necessary to the extent to move them.

"The fact is that it's hard to find good credit for mortgages. We have tougher requirements for mortgage loans, and not too many qualify to meet the standards we have set."