The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Fidelity Bank (Bahamas) yesterday shrugged off a “near tripling” of its Business Licence fees to deliver a 45 per cent year-over-year net income increase for 2014.

Anwer Sunderji, the BISX-listed commercial bank’s chief executive, told Tribune Business that it was able to withstand this “major earnings drag” and generate an almost $4.5 million net income increase - from $9.735 million in 2013 to $14.126 million.

Fidelity Bank (Bahamas) saw its bank and business licence fees jump from $652,994 to $1.929 million year-over-year, largely due to the 3 per cent Business Licence fee imposed on the commercial banking industry in the 2013-2014 Budget.

Mr Sunderji, meanwhile, told this newspaper that the bank had joined Commonwealth Bank in bucking recent consolidation/loss-making trends in the sector due to its conservative approach when the economy was booming.

Responding by e-mail to Tribune Business questions, he said: “Our bottom line has been robust during a time of major downsizing because we never grew our infrastructure during the heady days.

“So consequently we do not have much to cut back. In fact, our head count has grown by over 30 in the last three years. Our provisions have continued to grow, unfortunately, and our bottom line will reflect this trend.”

Loan loss provisions rose by 11.6 per cent to $6.86 million in 2014, with its non-performing loans as a percentage of the total credit portfolio “contained” at 8.6 per cent - well below the industry’s 16 per cent-plus average.

However, Fidelity Bank (Bahamas) warned that the non-performing loan outlook remained negative due to “headwinds” from a struggling economy.

“There appears to be a growing late payment problem (the precursor to a full blown delinquency), pushing the bank’s mortgage delinquency above its historical norms,” it warned.

“The bank continues to work closely with delinquent borrowers, and has restructured millions of dollars in delinquent loans to assist them. The action has done little to limit the growth of delinquency, as restructured loans soon fall into arrears.”

The BISX-listed institution also criticised the Government’s frequent Mortgage Relief Plan promises for exacerbating loan delinquencies by creating ‘moral hazard’ among borrowers.

It warned: “Borrowers stop paying their loans hoping to benefit from the Government’s largesse, causing further delinquency increases.

“As it turns out, not all delinquent borrowers are elderly, disabled or unemployed (the Government’s target for assistance), and many of them have been occupying their homes for more than five years and not paying their mortgages.”

Fidelity Bank (Bahamas) said commercial bank loan delinquencies would only improve when the economy and employment rates recovered, and Bahamians met their obligation to repay debts.

It then revealed that the Government, in a bid to prevent Bahamians from over-borrowing, was in discussions over plans to cap the percentage of workers’ salaries that can be used for loan-securing deductions.

Mr Sunderji, while backing this initiative as a means to encourage personal savings and responsible borrowing, warned that it would also have negative consequences for the economy and consumer spending.

“We believe the Government is keen to see Bahamians become more responsible borrowers,” he said. “This is a good thing. The proposed Government restrictions (yet to be announced) will avoid over borrowing and help ordinary persons to save more and plan better. The Credit Bureau will help in that aspect too.”

Yet he acknowledged that such government imposed restrictions could create “substantial hardship” for Bahamians, especially those who were borrowing to pay daily living costs and ‘make ends meet’.

And, with consumer spending a major driver of GDP growth, Mr Sunderji warned that it could also impact the wider Bahamian economy.

“Consumer spending contributes over 50 per cent to the GDP and any proposed restrictions will need to be managed carefully,” he said.

“The banking industry is just one regulated lending segment and we note that there are many other unregulated lenders in the market place.”

Elsewhere, Fidelity Bank (Bahamas) 2014 net income received a boost from the $1.642 million profit share it received from its joint venture investments. That represented an 87.6 per cent increase on the $875,227 received in 2013, with the bulk coming from the 50 per cent equity stake in its RoyalFidelity Merchant Bank & Trust affiliate.

The BISX-listed commercial bank has also benefited from its switch away from a conservative, staid mortgage lender to an institution increasingly dependent on consumer loans.

These now account for $234 million, or 68 per cent, of its total $346 million loan book, having grown from $200 million or 62 per cent the year before.

“Consumer lending is an important part of our business,” Mr Sunderji told Tribune Business, “and so is mortgage lending, where we have seen rates plunge as Money Centre banks attempt to get market share.

“Fidelity has not participated in this feeding frenzy simply because we don’t think the lower mortgage rates reflect the embedded risk in this segment.”

He added that the 2014 results were close to the bank’s expectations, while “the full impact” of Value-Added Tax (VAT had not been felt on expenses. But recent salary increases were a reflection of the new tax.

Fidelity Bank (Bahamas) earnings per share (EPS) for 2014 came in at $0.47 compared to $0.31 in 2013, while income attributable to ordinary shareholders was $13.36 million, an increase of 50 per cent.

The bank’s Return on Average Assets (ROAA) improved to 3.09 per cent, up from 2.3 per cent, and Return on Average Equity (ROAE) was 29.8 per cent, a 33 per cent increase from 2013.

Operating expenses jumped by $2.6 million or 12 per cent, and despite the increase in Business License fees, the bank improved its efficiency ratio to 46.1 per cent from 49.4 per cent.

Fidelity Bank (Bahamas) share price rose 57 per cent to $4.75 during 2014, boosting its market capitalisation to just under $140 million. The share price has increased by a further 10 per cent in 2015 to $5.26.

Provisions for loan losses were 19 per cent of revenue at $6.86 million, increasing by 12 per cent from the prior year. Assets grew by 6 per cent to $473 million, and loan assets by 6 per cent to $332 million. The loans to deposit ratio was 88 per cent.

The bank’s capital adequacy stood at 18.5 per cent at year-end, above the Central Bank requirement of 14 per cent.