The Tribune

By NEIL HARTNELL

Tribune Business Editor

Fidelity Bank (Bahamas) chief executive yesterday said "there is no doubt we have turned the corner" after its 2011 total comprehensive income increased by 144 per cent year-over-year, telling Tribune Business that profits were expected "to continue at this rate or better".

Anwer Sunderji, speaking after the BISX-listed commercial bank unveiled a bottom line increase from $1.573 million in 2010 to $3.844 million last year, said it was starting "to see the fruits of our strategy", with consumer loans now matching mortgages in terms of total loan portfolio share.

Disclosing that Fidelity Bank (Bahamas) 2012 first quarter performance was ahead of last year's comparative, Mr Sunderji told Tribune Business that last year's impressive profits increase still came in below budgeted forecasts.

He attributed this to a combination of increased bank licence fees; the interest margin squeeze created by May 2011's Prime interest rate cut; and a 68.7 per cent year-over-year increase in loan loss provisions to just under $2 million.

Acknowledging that Fidelity Bank (Bahamas) 2011 net income might have reached the $4.5 million range had it not been for these developments, Mr Sunderji told Tribune Business: "It [comprehensive income] was lower than expectations simply because we had to make an additional loan loss provision... We increased our provisions to $2 million from $1.18 million."

The Fidelity Bank (Bahamas) chief executive explained that the extra provisions related to the fact that, as delinquent loans aged, banks' ability to recover them - and the percentage that could be recovered - tended to diminish. The loan loss provisions were simply reflecting that.

Still, Fidelity Bank (Bahamas) saw non-performing loans drop year-over-year from 9 per cent to 7.51 per cent of its total loan book at end-December 2011, the total non-accrual amount having fallen from $19.729 million to $18.883 million.

Total provisions were equivalent to 26.39 per cent of the bank's non-performing loans, up from 23.68 per cent in 2010, while also standing at 1.98 per cent of the total $243 million loan book.

Attributing Fidelity Bank (Bahamas) growth in 2011 "to a combination of things", Mr Sunderji told Tribune Business: "We grew despite a difficult economy. We grew at more satisfactory levels, and the loan mix changed. Both those factors contributed to margin expansion and a better bottom line."

Part of Fidelity Bank (Bahamas) revitalisation strategy has been to substantially increase the weighting of consumer loans in its portfolio, switching away from its position as a pure mortgage lender. "We are about 50/50," Mr Sunderji said in terms of the split between consumer and mortgage loans.

The bank's financial statements at the 2011 year-end showed that consumer loans had increased year-over-year from $60 million, or 28 per cent of the total loan portfolio at year-end 2010, to $105 million or 42 per cent at December 31, 2011.

In contrast, residential mortgages had fallen from $117 million or 54 per cent of the total loan portfolio as at end-2010, to $109 million or 44 per cent a year later.

The benefit for Fidelity Bank (Bahamas) is that consumer loans, which are sometimes unsecured, are perceived as more risky and therefore attract a higher interest rate than mortgages, improving interest income yields.

Confirming that the bank had been "steadily building" its consumer loan book, Mr Sunderji said the depressed real estate market, combined with the Prime rate drop, had forced Bahamian commercial banks to reappraise real estate's soundness as collateral/security for a loan.

Most mortgage loans were tied to the Prime rate, and as a result real estate was "not an asset class that's particularly attractive.

"Historically, we were very happy with real estate in terms of collateral requirements, but frankly it's become clear that liquidity is a big issue and finding quality buyers is an issue, so in terms of security it's not as robust as we thought it was," Mr Sunderji added.

While all commercial banks continued to struggle with their delinquent loan books, he told Tribune Business: "The bulk of our loans our at the lower end of the spectrum, below $250,000. We were not financing expensive houses, and that's helped us."

While not disclosing figures, Mr Sunderji said Fidelity Bank (Bahamas) was set to release its 2012 first quarter results soon, and added: "We're going to meet our expectations in terms of better results than in the equivalent period last year.....

"I think we expect reasonable growth this year; nothing special. The economy is going to show modest growth of 2 per cent or so, and I think we're going to grow in line with the economy."

And he further told Tribune Business: "There is no doubt we have turned the corner. We have resumed paying dividends. In the Bahamas market, dividend yield is an important criteria for most people in evaluating the worth of an investment, and our dividend yield on the current share price is 5 per cent, which is very attractive.

"We expect to continue to pay dividends on the basis that we expect our profitability to continue at this rate or better. It's been a very satisfactory 2011 for us, and we are happy to see the fruits of our strategic plan being executed."

Fidelity Bank (Bahamas) paid out $2 million or $0.07 per share in dividends from 2011, out of $0.13 in earnings per share (EPS). The bank raised $15 million in extra debt and equity capital during the period, including a preference share issue that generated just over $10 million of that figure.

Meanwhile, total equity capital increased to $47.2 million, while Fidelity Bank (Bahamas) return on assets (ROA) and Return on Average Shareholder Equity (ROE) hit 1.2 per cent and 10.8 per cent, respectively. Its capital and liquidity levels were ahead of Central Bank of the Bahamas, while loan delinquencies and arrears had been contained.

In a statement, Fidelity Bank (Bahamas) said its total assets grew by $68 million or 24 per cent to $350 million. Its loan book grew by $31 million, or 15 per cent, and deposits by $51 million. Revenues increased by 29 per cent to $19.1 million, and the bank restructured some $12.3 million worth of loan assets during 2011.