By NEIL HARTNELL
Tribune Business Editor
A BISX-listed bank is targeting full-year net income of $21m-$22m after its exceeding its budgetary target during the first nine months of 2021, its chief executive revealed yesterday.
Gowon Bowe told Tribune Business that Fidelity Bank (Bahamas) also plans to return the profits “overshoot” to shareholders with an anticipated dividend payment that will reach their bank accounts by mid-December and be “15 percent higher” than the mid-year 2021 payout.
Speaking after the bank’s total comprehensive income more than quadrupled to $17.796m for the nine months to end-September 2021, as opposed to just $3.723m the prior year, he acknowledged that profitability had already exceeded the $15m target set for the year.
However, Mr Bowe conceded that Fidelity Bank (Bahamas) was not without challenges. Its loan portfolio has contracted by $15m since year-end 2020, while “cash on hand” has jumped by almost $87m to nearly $275m due to the difficulty in finding qualified borrowers that it can extend credit to.
And the near $85m rise in deposits to $660m, combined with Fidelity Bank (Bahamas) decision to maintain some of the “highest” deposit rates in the market at around 2 percent, has resulted in interest expense for the nine months rising by over $100,000 to just over $9m - a move that has shrunk net interest margins.
Mr Bowe also suggested that Fidelity Bank (Bahamas) will struggle to match the $7.464m profit generated for the 2021 third quarter in the fourth, suggesting that a further $4m to $5m will be added to the full-year bottom line during the period.
He explained that the more modest expectations were based on the provisioning that the commercial lender will have to take on its $115m government securities investments due to the recent sovereign downgrades by both Moody’s and Standard & Poor’s (S&P), as well as the likelihood that some borrowers will prioritise Christmas shopping over loan repayments.
Fidelity’s increased 2021 profitability has been driven largely by reduced loan loss provisions, which fell by 76.4 percent year-over-year - from $20.314m in the first nine months of 2020 to $4.793m - as a result of it booking anticipated losses related to COVID-19 early.
“If you look into the details there are some stark realities,” Mr Bowe said. “The loan portfolio has contracted by $15m and cash on hand is continuing to increase, as is the growth in deposits.”
He added that Fidelity Bank (Bahamas) had maintained its deposit rates at levels “which we are confident are premiums in the market today”, which is part of a strategy that balances rewarding shareholders and providing benefits to depositors “who create the liquidity to expand the loan portfolio by putting money into the bank”.
Mr Bowe acknowledged that this creates “greater pressure” via increased interest expense and an expanding deposit base, but added that the bank was “confident” it was managing its effective interest rate because interest costs had not gone up “commensurate” with deposits.
“The shrinking loan portfolio is not yet concerning to us,” he told Tribune Business, “but is something we are working on aggressively so that when our economic resurgence comes about we will be very active in that space to grow the portfolio.”
With Fidelity Bank (Bahamas) having beaten its full-year profit targets in just nine months, Mr Bowe said it planned to return the excess to shareholders via an upcoming dividend payment. “What we recognise is that we don’t want to set a precedent that says we are going to overshoot budget by that amount every year,” he added.
Confirming that an application has been made to the Central Bank for regulatory approval of a pre-Christmas dividend, the Fidelity Bank (Bahamas) chief said: “We’re not going to retain capital that is not productive and impacts our return on equity (ROE), so we’re going to pay out that excess profit in the normal dividend.
“I can say to you that if you look at the half-year dividend, it will be 15 percent higher than what we did in June.” Even with the dividend, which Fidelity Bank (Bahamas) hopes to declare by the first week of December, its risk weighted asset capital ratio will be at 23.9 percent and significantly above the Central Bank’s regulatory requirements.
As for the revised full-year profit target, Mr Bowe said: “We believe we can do $21m-$22m. We recognise we will not achieve the same $7m we did in the third quarter. We believe we will come in at $4m-$5m for the fourth quarter.
“Unfortunately we had the downgrade by both rating agencies, which means we have an impact on our $115m in government exposure” due to the increased possibility of default under international accounting standards.