Blurb
Macro-Economic Update: Inflation Expectation
Although trade tension between the U.S and China persists, officials of the two countries have agreed to reopen trade talks in October.
Hopes of trade talk reemerges
Although trade tension between the U.S and China persists, officials of the two countries have agreed to reopen trade talks in October. The possibility of a trade talk was welcomed by investors as gains were recorded in September across key market indices: Dow Jones Industrial Average (+1.55%), S&P 500 (+1.30%) and the Shanghai’s CSI 300 index (+0.38%).
Also, the attack on Saudi Arabia’s oil facility in September led to an initial surge in the price of Brent crude, however, Saudi Arabia recovered earlier than anticipated, restoring balance in the market as Brent oil prices only rose mildly by 0.58% in the month.
[READ MORE: Ajaokuta Steel capable of creating not less than 600,000 jobs – NIMMME boss]
In September, the FAO Food Price Index rose by 3.3% year-on-year but was unchanged on a month-on-month basis. The stability in food prices was as a result of the sharp decline in sugar prices offsetting the rise in prices of vegetable oil and meat.
In Nigeria, the naira remained relatively stable in the month, gaining 0.19% against the U.S dollar to close the September at NGN362.23/USD in the I&E window. Hence, external inflationary pressure was minimal in the month, informing our expectation of a marginal increase in core inflation.
Border closure pressures food prices
After signing the African Continental Free Trade Agreement (AfCFTA), the government initiated steps to address issues on dumping and smuggling. Land borders, which were closed in August, remained closed, pressuring food prices in the country.
Data gathered revealed a rise in the prices of food items, particularly imported food items. However, local producers of some staples have enjoyed the advantage of the supply gap as the prices of local substitutes rose in response to the shortage.
[READ ALSO: Border closure: Manufacturers lament losses incurred daily]
The Foreign exchange restriction on a couple of food items in prior months, further worsened the situation, resulting in a steep increase in food prices. Premised on the above, we expect a reversal of the downward trend in the food inflation index. Sequel to our evaluation of key inflation triggers in the economy, we expect the headline inflation to increase by 11.15% year-on-year.
Sequel to our evaluation of key inflation triggers in the economy, we expect the headline inflation to increase by 11.15% year-on-year.
Blurb
Fidelity Bank Plc must cover the chink in its curtains to keep rising
Fidelity Bank Plc follows the narrative of top tier-2 banks, which have had better or easier years.
The Nigerian banking sector has consistently been one of the most profitable sectors in the Nigeria Stock Exchange market. However, in 2020, Deposit Money Banks (DMBs) have faced a flurry of impediments, which may have affected their solidity.
With reduced income from fee and commission implemented at the start of the year by the Central Bank of Nigeria, the paucity of foreign currency for international transactions, the resulting economic contraction from dire effects of the coronavirus pandemic, and the consequent operational constraints of keeping employees safe, 2020 is obviously fraught with numerous disorders for banking institutions.
READ: Another Fidelity Bank Non-Executive Director purchases 1 million shares worth N2.75million
For most, it hasn’t exactly been a year for growth at all, more like a walk in the woods, where improvements to bottom-line is almost unexpected. This period, many banks seem content with simply surviving and fundamentally matching their previous feats.
Fidelity Bank Plc follows the narrative of top tier-2 banks, which have had better or easier years. The bank generated a 2020 9M PAT of N20.4billion, rising 7.08% from the corresponding figures last year, but drilling solely into its results in Q3’2020 and its exact comparative period in 2019, the bank suffered reduced interest revenue, reduced fees and commission, reduced profit before tax, and reduced after-tax profit.
READ: STANBIC IBTC posts Profit After Tax of N45.2 billion in H1 2020
Fidelity Bank Plc concluded Q3 with a profit position of N9.1billion, 13.7% decline compared to its position in 2019 y/y. PBT reduced by 12.9% from N10.8billion in 2019 to N9.4billion this year. Gross earning in Q3 was only N49billion as against N57billion in 2019 – plummeting 14%.
The Group Chief Executive Officer of the bank, Mr. Nnamdi Okonkwo, commenting on the result said: “Our 9 months results reflect our resilient business model, particularly in a very challenging operating environment. We worked closely with our customers to gradually recover from the economic impact of the pandemic and the attendant effect of the lockdown. The drop in gross earnings was due to the decline in interest and similar income, caused by lower yields and drop in fee income.”
READ: Sterling Bank Plc records 3.28% decline in 2020 9M gross earnings
True cause of the reduction in earnings
DMBs generate gross earnings under three primary subheads: Interests earned, Fees and commission, and Other operating income. Fidelity Bank Plc generated a combined total of N150.8billion for the period ended September 2020 from these three categories, compared to the N158.5billion in the corresponding period last year.
READ: Ethereum Miners earn a staggering $1 million in 1 hour
Deeper analysis reveals that this rising tier-2 bank has seen more deficit in revenue from fee and commission compared to the other aforementioned gross-earnings’ generating-sources within this period. Interest earned dropped by a difference of N4.3billion, while revenue from fee and commission saw a decline of N4.8billion from N14.5billion in 2019 to N19.3billion YoY.
Fee and commission as a component of gross earnings
Card maintenance fees, account maintenance fees, commission on remittances, collect fees, telex fees, electronic transfer fees, amongst others, represent the plethora of channels that makes up income from fee and commission.
READ: Strong performance from Stanbic IBTC, despite weak retail banking position
The real insight this particular component of gross earnings provides is that a spike in revenue generated indicates increasing/increased customer account activity. The more a customer maximizes the usage of an account’s product and facilities, the more the revenue earned from this segment. Thus, earnings from fees and commissions are so overriding due to their apparent controllability.
For example, a bank could make the decision to purely pursue and aggressively drive the usage of its ATM debit card and promptly see the revenue from commission rise. Furthermore, an increased rate of card production and collection necessitates usage and consequently means more money is earned as card maintenance fees.
READ: Unity Bank Plc posts gross earnings of N11.04 billion in Q3 2020
The fact that gross earnings reduced mostly from fees and commissions should be a telling concern for the Management of Fidelity Bank Plc. Post covid-19 would birth the dawn of a new era for business processes. The management must guarantee the usability of its electronic banking channels, promotion of its cards, and with urgency, implement improved service delivery mechanisms to ensure that it is the first port of call to customers for general payments and remittances.
These measures are of grave significance in the bid to bridge its widened fee and commission income gap.
READ: Central Bank says monetary policy not to blame for rising food cost
Other indices
Holistically, in the 9 months ended September, it is worthy of note that the bank made certain advancements. Customer Deposits, Net Loans and Total Assets all grew in double digits. Customer Deposits grew by 22.3% from N1.2billion to N1.5billion, Total Assets also rose by 21% from N2.1billion in 2019 to N2.5billion, and Net Loans rose by 12.9% to N1.3billion from N1.1billion.
Blurb
Airtel is paying up its debts
Airtel’s annual report revealed that the company has a repayment of $890 million due in May, as well as, an installment of $505 million due in March 2023.
Blurb
Unilever Nigeria Plc: Change in management has had mixed impact
9 months into the change of management, Unilever Nigeria Plc’s performance in Nigeria has been largely underwhelming.
Vaccine, Backwardation and OPEC+: Hope for oil?
No unregistered sim on our networks since September 2019 deactivation – Pantami
Before you transfer RSA: Best Pension Fund managers in Nigeria (1)
elev8 launches new Nigeria Academy, to host event series on Nigeria’s digital future
100,000 tons of cocoa stranded at ports due to CBN documentation – Cocoa exporters
COVID-19 Update in Nigeria
Daily Parallel Market Exchange Rate – ₦480/$1
#EndSARS: CACOVID earmarks over N250 billion to rebuild police stations and create jobs
Visa report highlights ecommerce as key to unlocking merchant revenue growth during the festive season
Here’s why Leadway Pensure PFA should manage your Retirement Savings Account
