Friday, February 19, 2021
• BISX-listed bank confident of two-thirds claw back
• Says doubling 2021 profits to $15m is ‘achievable’
• Prior year’s shrunken net income only ‘off by $1m’
By NEIL HARTNELL
Tribune Business Editor
A BISX-listed bank yesterday said it ultimately expects to recover two-thirds of last year’s $15m loan loss provision increase as it bids to shrug-off COVID-19 by more than doubling profits in 2021.
Gowon Bowe, pictured, Fidelity Bank (Bahamas) chief executive, told Tribune Business the commercial lender is “conservatively estimating” it will regain $10m of that sum within a three-year period as tourism-related borrowers return to compliance with their loan payments following the industry’s recovery.
Speaking 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, Mr Bowe nevertheless said it is targeting a greater-than 100 percent bottom line increase this year.
He disclosed that Fidelity Bank (Bahamas) is targeting $15m in net income as “a base case” for 2021, a goal it believes is “achievable without stretching” despite ongoing uncertainty over the strength and timing of tourism’s recovery and the pace/success of COVID-19 vaccine roll-outs.
While some observers will likely view such a target as ambitious in the circumstances, Mr Bowe said the bank’s net income performance for the 12 months to end-December 2020 was only “off” by $1m from its internal forecasts.
Stripping out the $9m-plus one-off gain from the sale of its 50 percent stake in Royal Fidelity Merchant Bank & Trust, its now-renamed former affiliate, also provides a better indication of Fidelity Bank (Bahamas) pandemic performance. Using this measurement, profits were down by 68.8 percent when measured against pre-COVID 2019.
“I think it’s pretty much in line with what we had anticipated in terms of our exposure to the non-government (borrowers),” Mr Bowe told this newspaper of the bank’s loan loss provisions, which jumped by 145 percent year-over-year from $10.205m to $24.968m.
“A large part of that provision is tourism based,” he added. “A significant part of our non-government loans are to the tourism industry, mainly people in hotels. We’ve taken the provisions consistent with what we do in normal circumstances.
“We are confident we will recover a substantial portion of the uptick in provisions over time. It’s going to take several years; we’re estimating three years. Of the $15m increase in provisions, we are conservatively estimating we will recover $10m of that as the tourism industry recovers, people return to work.”
Mr Bowe said he anticipated that many borrowers’ existing loans will have to be restructured given that the tourism industry was largely shut for a straight eight-month period, and many parts have yet to re-open, have closed again or are only partially open.
Pointing out that few will be able to pay-off their loan arrears immediately, the Fidelity Bank (Bahamas) chief said: “Under the new payment terms we’ll deem you current so you are not sitting on a negative credit history. We’ll restructure to make you appear as if you are current.”
Despite the increased loan loss provisioning dragging down the bottom line, Mr Bowe said the bank had “not lost a tremendous amount of interest income”, which fell by less than 5 percent to $63.737m year-over-year for 2020.
He reiterated that Fidelity Bank (Bahamas) had opted not to adopt the “loan deferrals” used by other Bahamian commercial banks, but had instead kept normal provisioning policies in place such that it stopped accruing interest on credit facilities once 90 days past due.
“If you record interest that you have not collected are you truly telling yourself the truth, or are you creating a mirage for yourself?” Mr Bowe asked of the ‘deferral’ impact. “We decided to bite the desert dust as opposed to seeing the happy water.”
The notes to Fidelity Bank (Bahamas) unaudited 2020 financial statements, though, warn shareholders that the continuing uncertainty surrounding tourism’s return is still being “evaluated” and could yet result in a revision to the loan loss provisions taken for 2020.
Mr Bowe explained that the uneven nature of tourism’s re-opening, with some hotels again furloughing staff who had previously been recalled, along with the decision of some properties to close again, may impact the provisioning given that international accounting standards now require banks to account for future expectations when making these calculations.
However, he added that Fidelity Bank (Bahamas) - at least for the moment - had performed according to expectations amid the COVID-19 pandemic. “Persons may say I’m being too generous with myself but we were probably off $1m or less,” Mr Bowe told this newspaper of 2020’s net income result.
“We had projected we would be in the range of $8.5m..... The net interest income decline was in line with what we projected. We may have been optimistic on $8.5m, but we’re not disappointed with the current result.
“Quite candidly, we thought anything close to break even would be a positive year. People are calling 2020 a ‘gap’ year, like it didn’t exist. Our start and end position was exactly the same in terms of financial strength.”
Whereas Fidelity Bank (Bahamas) has traditionally held to a policy of paying out between 60-70 percent of net income in shareholder dividends, Mr Bowe said last year this ratio increased to 100 percent.
With a risk weighted capital ratio of 22-23 percent, well in excess of the 17 percent minimum set by the Central Bank, he explained that Fidelity Bank (Bahamas) did not need to retain all its profits on the balance sheet for capital adequacy.
While it had been retaining a portion of net income to finance its growth, Mr Bowe said COVID-19’s fall-out has now put paid to that for the next two years at least by forcing the bank to focus on management of its existing portfolio.
“Why retain capital that’s not earning a respectable return?” he asked, adding that its best deployment or use was to return it to shareholders via dividends. Looking ahead to Fidelity Bank (Bahamas) prospects for 2021, Mr Bowe added: “I wouldn’t use the cliche that we’re ‘cautiously optimistic’. I would say we are taking it one day at a time.
“We have, in our projections for 2021 that I can share with you, we are looking at a base case of $15m (profit). We believe we can do better than that, but as long as tourism remains uncertain and there is no unencumbered opening of the tourism product, that’s going to be very tenuous.”
Mr Bowe said its main borrower category, civil servants, could yet be impacted by enforced fiscal adjustments as a result of tourism’s delayed revival, but added: “We consider that the base case. It’s certainly what we believe is achievable without stretching.”