The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Fidelity Bank (Bahamas) believes its $2 million first quarter net income performance will repeat throughout 2013, with shareholder equity returns having risen another 3.7 percentage points.

Anwer Sunderji, the BISX-listed bank’s chief executive, told Tribune Business it was viewing the 48 per cent year-over-year net income increase as a “guideline” of performance for the next nine months.

He added that Fidelity Bank (Bahamas) $2.012 million bottom line would have been even higher had it not been for a more than five-fold increase in loan loss provisioning. These rose by more than $850,000 year-over-year, increasing from $312,754 to $1.17 million.

Mr Sunderj said the increased loan loss provisioning trend would also persist for the remainder of 2013, given the continuing issues with delinquent credit in the bank’s traditional mortgage portfolio.

Mortgage loans had taken “a particularly big hit” during the recession, he told Tribune Business, and this was being exacerbated by a combination of government policy and borrower choices.

Mr Sunderji said the Government’s proposed Homeowners Protection Bill, which continues to lurk in the background, threatened to transform banks’ risk/reward view of mortgage lending.

And, with homeowners increasingly electing not to pay their mortgages, despite having the ability to do so, the Fidelity Bank (Bahamas) chief said both factors were set to ensure loan loss provisioning remained at elevated levels.

To combat the latter problem, the Bahamian banking industry is hoping the “game changer” that is the long-awaited Credit Bureau becomes reality this year.

Fidelity Bank (Bahamas) saw its net and total comprehensive income rise from $1.364 million a year ago to $2.012 million for the three months to end-March 2013, and Mr Sunderji said it was likely to maintain a similar bottom line for the next three quarters.

“That’s our expectation,” he told Tribune Business. “We’re looking at the first quarter as a guideline. It looks as if we’re on target to achieve our 2013 numbers.”

If Fidelity Bank (Bahamas) maintains its first quarter performance, it will be on target to generate 2013 full-year net income of around $8 million.

And the first quarter net income could have been closer to $3 million had it not been for those bothersome loan loss provisions.

“We took a $1 million-odd provision in the quarter,” Mr Sunderji said. “That’s going to continue. We don’t expect the delinquency situation to dramatically improve this year.

“It’s a slow, protracted process that’s going to take several years, and it’s going to have an impact on the bottom line of all banks, not just ours.”

Fidelity Bank (Bahamas) provisioning issues relate to its traditional mortgage book, rather than consumer loans. Given the increasingly lengthy time it is taking to sell distressed real estate,and the drop in market values, banks have little choice but to increase credit loss provisions.

“The improvement in the Bahamian economy will take some time, two-three years perhaps,” Mr Sunderji said. “While improvement will hopefully start next year, job growth will take a few more years, and delinquency rates will not improve until there is job growth.

“There is no magic wand we can wave to suddenly cure the problem. People have to get jobs.”

Focusing specifically on the mortgage market, Mr Sunderji said: “It’s a tough one, because there’s a great deal of uncertainty associated with mortgages, simply because the Government has this Homeowners Protection Bill under consideration that fundamentally changes the risk/reward factor.

“If and until there’s some clarity, it’s prudent not to push into that area.”

And he added: “In this recession mortgage loans have taken a particularly big hit, and looking at the delinquency numbers they compare very unfavourably to consumer loans. Historically, that wasn’t the case.”

Mr Sunderji acknowledged that real estate was a relatively illiquid asset, difficult to re-possess and sell, and that high unemployment and other factors meant many Bahamian borrowers were in distress.

“But increasingly people are choosing not to pay,” he told Tribune Business. “Hopefully, it’s a trend not getting embedded in the economy.

“A Credit Bureau could fundamentally change this, as everyone’s delinquencies will be fed into it, so access to credit and pricing will be impacted for [non-payers]. That’s a game changer.”

Fidelity Bank (Bahamas) saw its return on average equity attributable to ordinary shareholders improve by 3.7 percentage points to 18.7 per cent during the 2013 first quarter, compared to 15 per cent at year-end 2012.

The bank’s efficiency ratio, which measures revenue as a percentage of operating expenses, also improved significantly year-over-year, falling to 52 per cent from 67 per cent.

This resulted from an improving top line, while expenses - barring loan loss provisions - remained relatively flat. Fidelity Bank (Bahamas) interest income increased by 22.3 per cent to $9.093 million, from $7.438 million the year before.

With low deposit rates holding interest expense flat a $3.406 million, the BISX-listed bank’s net interest income rose 38 per cent from $4.122 million to $5.687 million.

Total income increased almost 32 per cent, from $5.068 million to $6.683 million, while total expenses (driven by the loan loss provision rise) jumped 26.1 per cent to $4.671 million.

Fidelity Bank (Bahamas) loan to deposit ratio was at “a comfortable” 86 per cent, while its total assets had increased from $387 million at the 2012 year-end to $411 million.

Much of the increase resulted from a rise in cash and deposits, due to the high levels of liquidity in the Bahamian commercial banking system. Loan book growth was more muted at $6 million, rising from $278.42 million to $284.43 million.

In contrast, Fidelity Bank (Bahamas) deposits rose by more than $20 million - from $307.934 million at year-end 2012 to $329.44 million at March 31.

“We were ahead of the curve somewhat,” Mr Sunderji told Tribune Business of the bank’s performance during the recession. “I think we’re producing some decent and respectable numbers, particularly given the times.

“I think we paid a 20 cent dividend last year, and I’m sure some reasonable dividend will be on the cards this year. I can’t tell you what it is.” Fidelity Bank (Bahamas) share price rose by 31 per cent during the 2013 first quarter to hit $2.75 per share.