The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Fidelity Bank (Bahamas) yesterday unveiled a 45.8 per cent net income increase for the year to end-September 2014, aided by a $1 million contribution from the 50 per cent equity stake it holds in its merchant bank affiliate.

Anwer Sunderji, the BISX-listed commercial bank’s chief executive, said its performance for the first nine months of its 2014 financial year, which saw comprehensive income rise from $6.768 million in 2013 to $9.869 million, were “about on target”.

He revealed that the 50 per cent stake it now owns in RoyalFidelity Merchant Bank & Trust had added around $1 million to the retail bank’s bottom line, which it described as “a significant contribution”.

Net income to ordinary shareholders, calculated after the payment of preference share dividends, hit $9.264 million or $0.32 per share.

Mr Sunderji, in e-mailed replies to Tribune Business questions, said Fidelity Bank (Bahamas) bottom line growth continued to be driven by “modest loan growth”, coupled with reduced deposit rates and expense controls.

The bank continued its trend of year-on-year profit improvements despite an increase in loan loss provisions, as more mortgage credit slipped into the non-performing category where they are 90 days or more past due and interest is no longer accrued.

And Fidelity Bank (Bahamas) also blamed “poor legal work” for forcing it to recognise “title issues” relating to some mortgage and real estate loans, implying that it had to provide for difficulties in collecting on security/collateral that was not properly perfected.

Mr Sunderji told Tribune Business that the ‘bad title’ issues were not ‘material’ to Fidelity Bank (Bahamas) financials, describing them as “more of a nuisance”.

He added: “We have addressed the bulk of the losses arising from defective titles.”

Still, non-performing loans as a percentage of Fidelity Bank (Bahamas) total portfolio are almost half the industry average in percentage terms, standing at 8.6 per cent compared to 17 per cent.

Mr Sunderji said the Bahamian commercial banking industry would be stuck with high non-performing loan levels until the unemployment rate fell below 10 per cent.

Speaking to his bank’s ‘containment’ success, he added: “We have restructured a significant number of loans and extended payment terms to troubled borrowers who are making partial payments in some instances.”

Mr Sunderji said only 13 per cent of delinquent mortgages were situations where all parties to the loan were unemployed. Some 85 per cent of the bank’s delinquent mortgages were cases where at least one party was receiving an income.

“For the most part, there is little one can do with unemployed persons. These are the people the Government needs to assist as a priority,” Mr Sunderji told Tribune Business.

“There are many borrowers who are receiving some income who simply choose not to pay. But they pay their car loans, credit cards, phone and cable bills.

“ It appears there has been a significant change in the importance of home ownership, and it seems it no longer is the priority it used to be.

“Non-payment of a mortgage bill of, say $1,500, is for most people a doubling of discretionary income and that is hard to resist if you can continue to live in the house for free.”

Mr Sunderji said some delinquent borrowers stayed in their homes for up to five years before the bank exercised its power of sale under the mortgage contract.

He added that bringing Fidelity Bank (Bahamas) into Value-Added Tax (VAT) compliance had cost around $0.5 million, with that process now completed.

Fidelity Bank (Bahamas) said its share price had increased by nearly 42 per cent during the first nine months of 2014 to $4.25.

It added that on a Trailing Twelve Month (TTM) basis to September 2014, earnings were $12.836 million (2013 $8.83 million) with earnings per share (EPS) of $0.419 and a Price/Earnings ratio (PER) of just over 10 times.

Mr Sunderji said in a statement: “The bank reported very satisfactory results despite a sharp increase in provisions for loan losses. Since 2013 year-end, total assets grew by 8 per cent or $36 million, and loan assets by 5.4 per cent or $17 million.

“Our core business performed well in a difficult environment and is generating adequate returns. We expect the trend to continue for the balance of the year. Our capital strength and liquidity continue to remain robust and we are focused on execution, controlling expenses and managing risk.

“During the year, deposits grew by just under $30 million and liquidity remained robust. Based on present trends, system liquidity is expected to remain strong for another 12- 18 months, keeping a downward pressure on deposit rates.”

The bank’s capital met and exceeded the Central Bank’s requirements.

Scotiabank, meanwhile, has joined its Canadian compatriot, CIBC, in taking a major hit in the Caribbean. It unveiled a Cdn$109 million provision against three unidentified hospitality loans in the region, and announced plans to close 35 branches. Some 500 jobs are to be shed from its international operations, spread across 50-plus countries.

A spokesperson for Scotiabank (Bahamas) declined to comment when contacted by Tribune Business on how all this will impact operations in this nation.

Several sources suggested it was too soon to determine how, and whether, the Bahamas would be impacted, but this nation’s size within Scotiabank’s Caribbean business suggests there might be some fallout.