Fidelity Bank Nigeria PLC has reaped the dividend of revaluation gains on earnings per share (EPS), but the devaluation of the Naira means the lender will need to raise N294.84 billion or be aggressive about earnings retention to shore up liquidity amid deteriorating capital adequacy ratio (CAR), according to recent report by Chapel Hill Denham.
The small and midsized lender who recorded a record profit saw CAR ratio deteriorate to 16.10 per cent in June 2023 from 19.80 per cent as of December 2022, according to data from Chapel Hill Denham.
It must be noted that the risk weighed asset (RWA) grew by 31 per cent year to date (YTD), putting pressure on CAR, which laid bare the need for recapitalisation.
“We note that since the liberalisation of the exchange rate, the currency has traded within the range of NGN430.00/dollar-N869/dollar at the official I&W window so far in 2023,” said analysts at investment house.
“However, according to management, NGN900/dollar, Fidelity’s CAR becomes uncomfortably close to minimum CAR of 15 per cent,” said the analysts.
The abrupt devaluation of the currency since President Bola Ahmed Tinubu announced market friendly reforms is a blessing in disguise for lenders who made gains on foreign exchange revaluation that lifted their earnings to an all-time high.
For instance, Fidelity Bank’s average return on equity (ROAE) increased to 34.90 per cent in June 2023 from 15.40 per cent the previous year.
However, the central bank has warned against doling out the vast amount of the windfall in the form of dividend and share buybacks as it stressed the need to protect capital against macro shocks.
A capital restructuring combined with Fidelity Bank’s plans to increase its issue capital to N22.60 billion via a public offer up to 10 billion ordinary shares and rights issues of up to 3.2 billion shares, could potentially raise 34 percent of the estimated capital, according to analysts at Chapel Hill Denham.
The research house has maintained a Buy rating on the lender’s stock. [Money Central]
Stay ahead with the latest updates! Join The ConclaveNG on WhatsApp and Telegram for real-time news alerts, breaking stories, and exclusive content delivered straight to your phone. Don’t miss a headline — subscribe now!
