The Tribune

• Eyes $19m bottom line as Q1 profits up over 20%

• ‘Stability’ returning as loss provisions decreasing

• Focuses on $5m ‘claw back’ of 2020 provisions

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A BISX-listed bank’s top executive says it is “well on its way” to exceeding its $15m full-year profit target for 2021 if first quarter “trends hold” over the remaining seven-and-a-half months.

Gowon Bowe, Fidelity Bank (Bahamas) chief executive, told Tribune Business the $4.798m net income achieved for the three months to end-March placed the commercial lender on track to achieve a full-year bottom line in excess of $19m.

With first quarter profits some 20.9 percent ahead of the prior year’s $3.97m comparative, which was achieved during a period in which only the last two-three weeks were impacted by COVID-19, Mr Bowe said the year-over-year reduction in loan loss provisioning signalled “stability” was starting to return to the broader Bahamian economy.

Loan loss provision for the period to end-March fell by 35.5 percent year-over-year to $2.779m, which the Fidelity chief said was an indication that no more borrowers were falling into delinquency where they are 90 days past due on their loans.

“For the actual first quarter we returned a net profit of $4.8m which, if you extrapolate out as an indication of full year profit, that carries us closer to $19m,” Mr Bowe told this newspaper. “We see that as a positive indicator.

“I think I said to you that $15m [net profit] at a minimum was what we were targeting this year, and we are well on our way towards that. For the most part, we got one-third of our target profit in the first quarter results, so if the trend holds it doesn’t look like we’ve set an unrealistic target.”

Acknowledging that Fidelity Bank (Bahamas) interest income top-line, and net interest income, will continue to be impacted by the inability of some borrowers to repay their loans until the tourism industry further re-opens and they are recalled to work, Mr Bowe nevertheless said the gap with prior years was closing as “non-performing loans come back to paying status”.

“The trick will be how we manage loan loss provisioning and get people, as they go back to work, to paying status once again,” he added, “so we can recover some of the excess provisions that we had to take in 2020. We don’t want to see any further persons going into non-performing status, and that is very much contingent on the country staying open and no major changes in the public sector.

“Loan loss provisions recovered back to pre-pandemic levels in the first quarter, which is a good indicator because it shows no more people are going into non-performing. It shows stability; everything else stayed consistent with 12 months ago. We took the major blows in the second and third quarter of last year.”

Mr Bowe reaffirmed that Fidelity Bank (Bahamas) remains committed to its target of recovering $10m, or two-thirds, of the $15m increase in 2020’s loan loss provisions as itself and other commercial banks readied their balance sheets for the fall-out from the pandemic’s economic devastation.

“In terms of the $15m increase, our target is to recover $10m or two-thirds of that,” he said. “That’s not all going to be done in one year. This year we’re going to be watching what happens in the tourism sector in the second half. We know we have lost the winter season.

“From that perspective we don’t have high hopes that things will recover in the first six months of 2021. If we catch the second cycle wave in the fall, and that becomes buoyant, we are targeting one-third [$5m] of that coming back into good standing by the end of the year.”

Mr Bowe said Fidelity Bank (Bahamas) planned to adopt a cautious approach to returning capital to shareholders during the 2021 first half, adding that the institution aimed to return to its pre-pandemic ratios of paying out 70 percent of net income to investors.

“What we need to do is we are going to be careful and watchful for the first six months,” he explained. “We don’t need to increase capital, but we’re not going to be in the business of decreasing it....

“This year we will return to the ratio of 70 percent of profits paid out in dividends. Last year we paid out 100 percent of percent of profit as dividends.” Provided all goes to plan, Mr Bowe said Fidelity Bank (Bahamas) will apply to the Central Bank to declare an ordinary dividend by early June with hopes of getting approval to pay it by that month’s end.

He disclosed that the BISX-listed institution had also reduced its cash holdings by some $12m since year-end 2020, dropping them to $175m, by investing in short-term government bond issuances.

“We were able to deploy that and show some confidence in the Government,” Mr Bowe said. “A one-year note is an attractive tenor and risk profile. Most of the decrease in cash has gone to support the Government in recent bond issues, but we have kept them to one year so we have flexibility to cash out if persons start to invest and draw down on deposits.”

Fidelity Bank (Bahamas) had “held our own” and “stayed the course” in 2020, he added, after the bank unveiled a sharp 77.9 percent year-over-year profitability drop, from $33.548m to $7.414m, due to the pandemic’s devastating impact on the ability of businesses and households to service their debt.

The 2020 bottom line was also boosted by the $9m-plus one-off gain from the sale of the bank’s 50 percent stake in Royal Fidelity Merchant Bank & Trust, its now-renamed former affiliate.