By NEIL HARTNELL
Tribune Business Editor
FIDELITY Bank (Bahamas) is targeting 10 per cent net income growth for 2018 as consumer loan expansion continues to compensate for mortgage book contraction.
Gowon Bowe, the BISX-listed commercial bank's chief financial officer, told Tribune Business that it aimed to grow its consumer credit portfolio by a net $6.5 million during the fourth quarter, taking the 2017 full-year expansion to $20 million.
Disclosing that Fidelity's strategy of focusing on consumer loans was continuing to pay off, with a 5-7 per cent non-accrual rate "very low relative to our peers", Mr Bowe said the bank was preparing to issue a dividend to shareholders before 2017 ended following results that were slightly ahead of 2016 comparatives.
"By and large we will meet or exceed our internal loan growth targets," Mr Bowe told Tribune Business. "We're certainly on track.
"Overall, we're expecting a $20 million growth in consumer loans. That's our bread and butter. We're expecting mortgage loans to continue to contract. There's no growth in those, apart from repayments coming in. But if you're growing at $20 million you've probably done a good job as you're competitive in winning new business."
The housing/mortgage market is still struggling to recover more than a decade on from the 2008-2009 recession, and Fidelity Bank (Bahamas) decision to restructure its business and move away from its heritage into consumer loans just prior to the 'crash' was especially well-timed.
For the first nine months of 2017, Mr Bowe revealed that Fidelity's consumer loan book grew by $13.5 million, but its mortgage portfolio contracted by around $3.5 million. This produced total growth of just under $10 million to $395.635 million in outstanding credit.
"For 2017 we're expecting to be consistent with the profitability we had last year, which will give us a consistent return on equity of 30 per cent, and we will be issuing a dividend before year-end that will be higher than last year," Mr Bowe disclosed.
"[For 2018] we'd like to achieve 10 per cent net income growth, which will be $2 million growth over the prior year. That will be contingent on how well the economy's doing, how buoyant it is, how unemployment is reducing and recovering, and if we see greater traction in terms of new mortgages being issued to soak up some of the surplus we have in the market.
"The mortgage portfolio for Fidelity is on the decline because no new significant mortgages are being written, as people find it difficult to qualify and we're just receiving payments on the existing loan book."
Despite an optimistic outlook for 2018, which should feature a fully-opened Baha Mar, Mr Bowe said Fidelity Bank (Bahamas) was keeping a wary eye on the Minnis administration's approach to the Mortgage Relief Plan and Homeowners Protection Bill - initiatives that were both introduced by the former government.
"There's a delicate line between support and assistance for those in need versus the moral hazard created when there's a perception that the Government will step in and pay bills on your behalf," he told Tribune Business.
Fidelity Bank (Bahamas) bottom line performance for the nine months to end-September 2017 was relatively flat year-over-year, finishing slightly up at $16.118 million compared to $15.857 million.
General and administrative expenses were up for the period by almost $1 million, or 13.9 per cent, at $7.93 million compared to $6.96 million a year ago. While Fidelity incurred extra service provider costs and other one-off expenses, Mr Bowe said 75 per cent of this increase resulted from higher Business License fees.
"As we had a higher profit in 2016 than we did in 2015, the 2017 Business License fee is impacted by that," he explained. "While that was not the sole contributor, that is almost 75 per cent of the increase. As your profits grow in one year, it has a knock-on impact in the next."
Mr Bowe pointed out that the former Christie administration had switched the basis for the commercial banking industry's Business License fee calculation to gross interest income, and away from assets.
He added that the rate for banks was 3 per cent, double the highest for other types of businesses, which is set at 1.5 per cent.
"When there is an increase in bank costs that has a knock-on impact that forces banks to either rationalise costs and look at other ways to increase income," Mr Bowe told Tribune Business. "That's where we are having discussions over what are reasonable fees to charge."
He added that Fidelity's loan book growth and interest income in 2017 had both been impacted by events occurring in late 2016, namely Hurricane Matthew and the Central Bank's decision to cut the Discount Rate by 0.5 percentage points.
The former resulted in an influx of borrowers seeking storm recovery loans in late 2016, which resulted in "slower than normal growth" through the first four months of 2017. And the Central Bank move reduced interest income on all loans with variable interest rates tied to the Discount Rate and Bahamian Prime, impacting Fidelity's top-line and net interest income.