The Tribune

• 2023’s 32% drop ‘not where we want to be’

• BISX-listed lender in commercial loan move

• Consumer loan core is ‘not an easy road’

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A BISX-listed bank yesterday revealed it is targeting $18m in full-year profits for 2024 after “opening the hood” to assess why last year’s projections were missed.

Gowon Bowe, Fidelity Bank (Bahamas) chief executive, told Tribune Business that management were checking the lender remains a finely tuned machine as 2023’s net income performance was “not where we wanted it to be”.

The commercial bank yesterday unveiled unaudited financial results for the 12 months to end-December 31 that showed a 31.6 percent year-over-year decline in profits, which fell from $20.218m to $13.78m. The drop came despite Mr Bowe telling this newspaper in mid-November that the bank was “not revising” its $16m profit target for the 2023 full year.

That was ultimately missed by $2.22m, based on the unaudited figures. While Fidelity Bank (Bahamas) full-year total revenues were essentially flat, increasing by just over $150,000 to $59.426m, the greatest impact to its bottom line came from a more than $6.6m hike in its expense base.

General and administrative expenses rose by $4.12m or 24.4 percent, jumping from $16.891m in 2022 to $21.012m, which were largely driven by a $1.3m year-over-year increase in Business Licence fees and merchant card services costs that were some $1.2m higher than the bank had originally projected.

“I think that certainly we would call it not where we want to be,” Mr Bowe told this newspaper of the 2023 full-year performance, “but it’s provided us with a very solid understanding of what the economic environment looks like and is telling us to look at what has to be done differently....

“The fourth quarter out-turn was a little less than anticipated. From that perspective, we have really sat down and opened up the hood to make sure we are cleaning the spark plugs, changing the oil filters and changing the clamps. We have a vehicle that runs. It’s a solid Volkswagen. It’s durable and reliable, but we certainly need to refocus in those areas we have taken for granted in a buoyant environment.”

Disclosing that some shareholders have already asked questions over whether Fidelity Bank (Bahamas) has a growth and expansion strategy, Mr Bowe yesterday answered in the affirmative but reiterated it was one wedded to long-term sustainability rather than issuing “risky” loans simply to secure short-term profits.

“Our target for the New Year, 2024, is really to get to $18m understanding where we are from the foundation,” he told Tribune Business. “We believe we can exceed that, but first and foremost in our minds is that we are writing good business that’s sustainable over a long period as opposed to writing risky business for immediate profits.

“While there are vested stakeholders who would like to see more direct action, we are satisfied it’s more about sustain- ability and longevity than immediate returns. We are confident that we have a strategy moving forward, moving into commercial loans and revitalising consumer loans.”

Disclosing that consumer credit “will not be an easy road” in the wake of the COVID-19 pandemic, Mr Bowe said Fidelity Bank (Bahamas) has expanded its commercial loan portfolio by some $3.5m by focusing on small and medium-sized (SME) businesses rather than seeking to compete with the Canadian-owned banks for large commercial clients.

“We see opportunities for growth, but not in the traditional space,” he explained. “You’ll see we are increasing our commercial business, targeted at medium sized and smaller sized businesses, which requires new skill sets to underwrite.”

Mr Bowe said Fidelity Bank (Bahamas) was seeking to “combine” this activity with its fast-growing merchant services offering, which drove a 19.7 percent or $1.2m year-over-year increase in fee and commission income to $7.358m from $6.145m. It will aim to exploit the potential synergies and “leverage the earning capabilities of each [merchant service] client” as a possible loan customer.

Describing this as a “new focus”, Mr Bowe said of commercial loans: “This year we grew about $3.5m. For us, when we’re coming into this space, we’re not doing these jumbo loans that our bigger counter- parts are doing, with loans of $5m-$10m. We’re talking medium, smaller, $500,000 and below.

“As we bring those on it’s essential to make sure we understand the risk, we understand cash flow and we become familiar with the underwriting process and the underwriters become more familiar” with the nature of the clients they are dealing with.

Fidelity Bank (Bahamas), which up until the mid-2000s was a slow-growing mortgage lender, switched to consumer credit just prior to the 2008- 2009 ‘credit crunch’ and subsequent recession. By following Commonwealth Bank into this space, its profitability has accelerated ever since to the point where it now has more than $779m in assets on its balance sheet.

However, Mr Bowe yesterday conceded that the near-term outlook for the wider Bahamian consumer credit market is not promising. “The clear evidence is that the credit environment in the Bahamas, certainly in the consumer lending space, is going to remain subdued for an extended period of time,” he told this newspaper.

While Fidelity Bank (Bahamas) own consumer loan portfolio has not contracted since June, Mr Bowe said Central Bank data showed the segment overall enjoyed only a modest $19.1m expansion in 2023 following a more than $100m decline in the prior year. “When you look at the level of contraction and level of rebound a year later, it indicates it will not be an easy road with consumer lending,” he added.

While post year-end loan loss provision modelling is “only going to increase” the profits posted in the bank’s unaudited financial statements, Mr Bowe said merchant, card and value- added services are areas “where we have to give significant attention”.

He added: “What contributed to the less than expected profitability was the costs of the card business were higher than expected. That’s a statement on management. Some of the cards were not contracted at the level we thought they were, and some of them were higher costs.

“Being a retail bank, we had some legacy contracts that were not very favourable for some of the growth in the merchant business. We’re reconstructing those contracts. We have to learn to change an engine in mid- flight and that’s what we’re doing.”

Explaining the 2023 surge in the bank’s general and administrative costs, Mr Bowe said Business Licence and other fees jumped from $3.9m in 2022 to $5.2m last year. Besides that $1.3m jump, costs involving merchant cards also rose by $1.2m.

“That’s one we are aggressively working on the contract negotiations to make those costs more in line with our business strategy moving forward, moving from an issuing bank to a meaningful acquiring bank,” Mr Bowe added. “Those are the two biggest ones.”