The Tribune

• Bank now targeting $20m-$22m for full year

• ‘Worst case’ is $16m with $25m out of reach

• Adds 1,500 merchant clients in 18 months

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Fidelity Bank (Bahamas) yesterday pledged to “ramp up” its performance during 2023’s final months after a near-30 percent first-half decline put the “stretch” $25m profit target for the full year seemingly beyond reach.

Gowon Bowe, the BISX-listed commercial bank’s chief executive, told Tribune Business it was anticipating an improved second half due to a reduction in loan loss provisions compared to what was incurred during the first six months as “recoveries creep in”.

Revealing that the lender has revised its “worst case” scenario for full-year profits to $16m, he added that it is now targeting a bottom line “consistent” with 2022 and 2021 of between $20m-$22m. To get there, he noted that Fidelity Bank (Bahamas) is on target to recover around $4m in delinquent loans by year-end, having clawed back some $1.8m during 2023’s first-half.

Reiterating that it expects to recover an average $4m-$5m per year when its “aggressive collection efforts”, targeting some $80m in consumer credit write-offs, kicks-in, Mr Bowe told this newspaper that Fidelity Bank (Bahamas) plans a major Christmas push on its merchant card services business having added some 1,500 new accounts in recent months.

This, in turn, is boosting the bank’s fees and commissions income, which rose by 20.8 percent or more than $500,000 during the 2023 first half to $3.43m. Mr Bowe added that the straw vendors and taxi drivers, who Fidelity Bank (Bahamas) has equipped to accept debit and credit card payments from visiting tourists, have seen business increase by 30 percent as a result.

He confirmed that the bank is seeking to build its non-interest income streams into a “sizeable chunk” of total revenues given that itself, and all rival commercial banks, will be competing for the same borrower pool with no appreciable growth in their loan books “for at least three years”.

Mr Bowe, affirming that the bank is not moving away from its traditional loans and deposits model, and views fee and commission income as complementary to this, reiterated that its ultimate goal is to be “a $50m profit bank” and that it will achieve this by focusing on a long-term strategy as opposed to “short-term profits that appease the market”.

The Fidelity chief spike out after the bank’s unaudited results for the six months to end-June 2023 showed a 29.5 percent, or more than $3m, year-over-year fall in first-half income to $7.318m as opposed to $10.367m the prior year. Net interest income was flat against 2022 comparatives at $26.682m, with the rise in fee and commission earnings producing a marginal increase of less than $400,000 in total income at $29.174m.

However, Fidelity Bank (Bahamas) saw total expenses increase by more than $3.4m, or 18.7 percent, year-over-year as these rose to $21.857m from $18.411m. The major culprit was the more than-$2.3m surge in loan loss provisions, which jumped by 90.9 per cent year-over-year to $4.883m compared to $2.558m in the 2022 first-half. General and administrative expenses also rose, growing by just over $850,000 from $8.459m to $9.311m.

Mr Bowe, though, said there were already signs that the loan loss provisioning is easing. “Our second quarter provisions are about $500,000 less than the first quarter,” he told Tribune Business. “We’re starting to see more of the recoveries creep in. We are expecting that the third quarter and fourth quarter provisions will continue to see a decline.

“We know last year and the year before we had COVID recoveries of roughly about $5m a year. We’re not going to have that this year, but as we increase the recovery effort through bankruptcy and more aggressive collections we expect to be running at $4m-$5m a year on that one because of the $89m delinquent portfolio.

“We are expecting this year to be the start of it. We have recovered to-date, at the half-year, $1.8m so we are well on the way to $4m for the full year. It’s interesting. We discussed in the Board meetings that it’s almost as if we have two loan portfolios; a performing portfolio and a non-performing portfolio.”

That $80m non-performing portfolio features legacy consumer loan delinquencies that have built up over many years. Recoveries from it will be the goal of Fidelity Bank (Bahamas) credit collections centre, which will be supported by branch staff, who will still be responsible for managing/administering performing loans and originating new credit. Employees who generate recoveries will be rewarded through an incentive initiative.

Asked whether Fidelity Bank (Bahamas) is revising downwards the 2023 full-year profits target it unveiled earlier this year, Mr Bowe confirmed: “We are looking at that in terms of where we want it to land. We know that the $25m, which was a stretch target, is not realistic this year. We are still targeting a consistent profit with last year of between $20m-$22m....

“We certainly expect the second half to be stronger and are doing the sensitivity analysis. Our target now is that we know we will not hit $25m, but to be consistent with the prior year, which requires us to ramp up over the next two quarters. We know the collections and debt recovery will benefit us in that, and we know that the merchants we have brought on board becoming more accepting of the cards, there’s opportunity there.

“We know our worst case is $16m [profit], but we’re still targeting $20m-$22m so that we’re consistent with the prior year. We’re still looking at that range.” Mr Bowe said Fidelity Bank (Bahamas) will especially concentrate on its merchant services business, and the fee and commission income derived from it, as part of “the three elements we are focused on between now and December”.

He explained: “One is that during the holiday period there is a higher spend on credits cards and unsecured lending. In the last 18 months, we’ve expanded our merchant category and merchant customers by around 1,500. We are looking at how do we have those at maximum spend. We are doing a number of promotions in conjunction with MasterCard and Visa in terms of how we encourage a cashless society.

“The more people spend on cash with merchants, the more flows to us in fees and commissions.” Mr Bowe argued that merchants would save more through accepting a higher volume of credit and debit card payments, even though the average card discount rate may be between 3-4 percent, as the reduction in cash use would enable them to rely less on security guards, vaults and armoured cars - expenses he estimated could be equivalent to 10 percent of every dollar earned.

The Fidelity chief also disclosed the straw vendors and taxi drivers equipped by the bank to accept debit and credit card payments have seen a 30 percent increase in business as a result, although the fees and commissions derived will complement - rather than replace - the bank’s core loan business.

“The reality is that there are not new borrowers emerging. There are existing borrowers,” Mr Bowe told Tribune Business. “We are all competing for the same pool of borrowers. From our perspective, we see that being a similar situation for at least the next three years.

“We are looking to build the non-interest income to a sizeable chunk of revenue. If we can take that number from roughly $7m this year to $10m, that can be a drop to the bottom line of $3m. We are not a bank that is looking to move away from the traditional model of deposits and lending. We are simply looking for complementary opportunities.”

Describing the merchant services business as offering a “value-added” product, Mr Bowe said Fidelity Bank (Bahamas) is focused on steady expansion towards its $50m per year profit target. “I shared with the Board and shared with the staff that we are not looking for short-tern profits to appease the market and then have long-term adjustments,” he explained.

“We’d like to have a steady ramp up to where we want to be rather than volatile ups and downs. We want to move in a very consistent pattern that allows our shareholders to achieve stability. They can rest assured that their dividends will not be interrupted in any form or fashion, and can rest assured the return on equity will be consistent and not see volatility where there are significant profits and losses.

“We are very much deliberate in our approach.... so that we don’t have short-term gains for long-term pain. I’d rather have short-term pain for long-term gain. Our intent is that we are certainly targeting us being a $50m profit bank and we will only achieve that by steady progress towards that number as opposed to taking extra measures that could easily lead to extra risk if not addressed.”