The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Fidelity Bank (Bahamas) incoming chief executive will tomorrow unveil $7.5m in 2020 half-year profits as evidence the bank is “holding our own on the bottom line” despite COVID-19.

Gowon Bowe, who will replace Tom Hackett and be appointed to the BISX-listed institution’s board at the annual general meeting (AGM), told Tribune Business that while net income was “substantially lower” compared to both 2019 and pre-COVID expectations “any positive profit will be a good one” due to the pandemic’s economic fall-out.

With Fidelity Bank (Bahamas) “viewing anything above break even” as a strong outcome for 2020, Mr Bowe said it had seen a $5m increase in loan delinquencies during the three months to end-June 2020 due to the lockdown and other restrictions imposed to contain COVID-19.

Suggesting that the rise was minimal when set against the bank’s total $400m loan portfolio, he added that Fidelity was confident this was a “real” figure and “not masked” by the sort of blanket payment deferral initiative introduced by rival Bahamian commercial institutions.

Reiterating that Fidelity is working with troubled borrowers on a case-by-case basis, Mr Bowe said the bank is predicting that unemployment levels will remain elevated for at least another 12-18 months even if the tourism economy “jump starts” towards the end of 2020 or in early 2021.

He warned that 2021 will likely be a year in which The Bahamas’ economic tailspin from COVID-19 “plateaus”, with early 2022 likely the earliest when tourism arrivals start to return to pre-pandemic levels.

“We are releasing the half-year results to shareholders on Wednesday [tomorrow],” Mr Bowe told Tribune Business. “We have a half-year result of $7.5m, which is substantially lower than the prior year, but considering the potential impacts during this year, any positive profit by any institution is going to be a good one.

“While we were targeting $25m on a normalised basis, we are conservatively saying anything above break even will be a positive year. That $7.5m gives us a cushion and room over the remainder of the year, and we don’t need to concern ourselves too much on profit.

“We are increasing (loan loss) provisioning, which everyone expects, but we are still holding our own on the bottom line. We know the third quarter and fourth quarter will have higher provisioning. The first quarter did not have any as COVID-19 largely fell on us in the second quarter,” Mr Bowe continued.

“In the second quarter we’ve seen a spike in delinquencies, and we saw a spike in provisions, and when we come down to the third and fourth quarter we know we will lose even more.”

Fidelity Bank (Bahamas) 2020 half-year profits represent a 42.7 percent year-over-year reduction on the $13.082m generated during the same period last year. However, they still represent a roughly $3.5m increase on its 2020 first quarter bottom line, with that figure achieved between April and June at the height of the COVID-19 lockdown.

Mr Bowe said the BISX-listed retail bank was continuing to work with COVID-19 impacted borrowers on a case-by-case basis, having rejected the blanket payment deferral initiatives implemented by competitors.

“In terms of the actual numbers, the increase in our portfolio was $5m,” he told Tribune Business of COVID-related loan defaults. “Put that in the context of a $400m portfolio and that’s not too bad in the context of normal delinquencies.

“We believe the delinquencies numbers are realistic numbers, and not with any deferral numbers masking the true level of delinquencies..... Our actual delinquencies we believe are realistic because they are not masked by any deferral programme. We are running realistic numbers as opposed to artificial numbers.

“We haven’t had any unexpected increase in the past due element up to this point in time. We don’t know if we have reached the bottom, and won’t know until the economy fully opens and consistently opens,” Mr Bowe said.

“The opening of the economy, and now the new lockdown, are creating - if you will - economic volatility in personal income. The opening was not sustained, and persons were not working long enough to resume payments. It’s certainly created a cloud over the sunshine we saw coming in August and September.

“But our client base is still one that is largely employed in terms of the government sector. We have a number of stable blue chip companies that started operating after the shutdown, so we have a large percentage of the client base that still has an income.”

Mr Bowe said Fidelity Bank (Bahamas) was not resting on its results to-date, emphasising: “We’re not celebrating. The actual phone conversations with customers are ongoing. The phone lines are constantly engaged, and we’re speaking to customers on an hourly basis. Where are you in the scheme of things, and how do we balance our fiduciary responsibilities on behalf of depositors.

“It is not about forgiveness but about forbearance. The monies that were borrowed were lent by shareholders and depositors. The borrower has to meet their obligations. The funding has to be repaid. It’s not about forgiveness; it’s about understanding that the timelines for collection have changed. We’re managing the portfolio on an almost daily basis.”

Mr Bowe said Fidelity Bank (Bahamas) risk-weighted capital adequacy ratio, currently hovering between 24-25 percent, “gives us the ability to do quite well through the end of 2020” as it remains comfortably in excess of the 17 percent targeted by the Central Bank of The Bahamas and the regulator’s 14 percent minimum.

However, he told Tribune Business that the BISX-listed institution is preparing to manage an 18-month downturn “at the very least” rather than one that will last for just six months. “We see the rebound coming in 2022. We see it plateauing in 2021,” Mr Bowe said, “and hopefully in early 2022 will be when we start to see it.

“There will be higher unemployment numbers for the next 12-18 months. That really means that the focus for the remainder of 2020 and 2021 will be balancing that engagement with depositors and borrowers, ensuring cash flow from borrowers. Growth will not be coming until the economy reaches a stabilised state, which we predict will not be until early 2022.”

This was backed by Scott Elphinstone, Fidelity Bank (Bahamas) chairman, who wrote in its just-released annual report: “A full recovery in late 2022 is our base case assumption. We expect the crisis to have a negative effect on net income and total comprehensive income, equity and dividends in 2020.

“While global economies are starting to reopen after shutdowns imposed by governments, the recovery is tenuous due to the uncertainties of the path of the virus, potential treatments and the confidence of the populations to venture out of their homes. This will impact the economy of The Bahamas most severely, as it is dependent on tourism.

“While we are optimistic that there will be a medical breakthrough, the focus of the Board of Directors and management has shifted to loan quality and maintenance of our equity position, and our staff are engaged with customers that are struggling with loss of income.”