Fidelity Bank Plc posted strong revenue growth in the first quarter of 2026, but higher funding costs and increased credit impairment charges weakened profitability, highlighting the strain high interest rates are placing on Nigerian banks.Â
The tier-two lender posted a profit after tax of N74.47 billion for the three months ended March 2026, representing an 18.2 per cent decline from the N91.1 billion recorded in the corresponding period of 2025, despite double-digit expansion in gross earnings and interest income.
Pretax profit also fell 12.57 per cent to N92.4 billion from N105.7 billion a year earlier, according to the bank’s unaudited financial statements released this week.
The earnings performance reflects a notable trend across the Nigerian banking sector, where elevated benchmark interest rates, aggressive deposit repricing, and tightening liquidity conditions are increasingly squeezing margins, even as banks continue to benefit from strong asset yields and foreign exchange-related gains.
Fidelity Bank’s gross earnings rose 37.9 per cent year-on-year to N434.97 billion from N315.42 billion, supported primarily by growth in interest income and stronger non-funded income streams.
Interest income climbed 22.8 per cent to N314.48 billion from N256.10 billion in the same period last year, driven largely by earnings from loans and advances to customers, which contributed N198.6 billion during the quarter.
Treasury bills and investment securities added N96.3 billion, while placements and short-term funds contributed N19.1 billion. Advances under finance lease accounted for N438 million.
However, the gains from higher asset yields were significantly offset by a steep rise in funding costs.
Interest expense rose 90.3 per cent to N172.53 billion from N90.65 billion in Q1 2025, reflecting the growing cost of maintaining liquidity in a tight monetary environment and the repricing of deposits and borrowings across the banking industry.
The rise in funding expenses reduced net interest income to N180.77 billion, down 5.3 per cent from N190.8 billion recorded a year earlier.
An analysis of the bank’s funding profile shows that debt issued and other borrowed funds accounted for the largest share of the increase in interest expense, rising to N92.49 billion from N30.63 billion in the corresponding quarter of 2025.
Interest paid on term deposits also rose significantly to N56.76 billion from N36.86 billion. Analysts say the development could indicate either temporary liquidity management measures or a deeper structural increase in the bank’s funding costs.
The bank also recorded a deterioration in impairment charges, pointing to rising stress within parts of its loan portfolio.
Credit loss expense rose 365 per cent to N29.20 billion from N6.29 billion recorded in the same quarter last year, significantly eroding earnings growth.
Following the impairment charges, net interest income after provisions declined 17.9 per cent to N151.56 billion from N184.53 billion in Q1 2025.
The rise in provisioning comes amid persistent macroeconomic challenges, including high inflation, currency volatility, elevated borrowing costs, and weakened consumer purchasing power, all of which continue to pressure businesses and households across the economy.
The increase in loan-loss charges may also signal growing concerns around asset quality, particularly within sectors vulnerable to rising operating costs and weaker demand conditions.
Despite the pressure on core banking income, Fidelity Bank received substantial support from non-interest revenue streams.
Fee and commission income rose 39.6 per cent to N33.28 billion from N23.8 billion, reflecting stronger transaction volumes and increased electronic banking activity.
The bank also booked foreign-currency revaluation gains of N47.99 billion, compared with N9.83 billion in the same period last year, representing a 388 per cent increase.
The gains, driven by currency movements and revaluation of foreign currency-denominated assets, helped cushion the impact of weaker core margins and higher provisioning costs on overall profitability.
However, analysts caution that foreign exchange revaluation gains are inherently volatile and may not provide a sustainable earnings buffer over the long term.
Unlike recurring income from lending or transaction banking, FX-related gains are largely dependent on exchange-rate movements and market conditions, making them less predictable as a long-term earnings driver.
Operating efficiency remained relatively stable during the quarter.
Personnel expenses were broadly flat at N19.7 billion, suggesting that the bank maintained discipline around staff costs despite inflationary pressures.
Other operating expenses increased 19.4 per cent to N104.45 billion, reflecting rising administrative and technology-related costs as lenders continue investing in digital infrastructure and branch optimisation.
On the balance sheet side, Fidelity Bank recorded moderate growth across key metrics, signalling continued expansion in business volumes and customer activity.
Total assets rose to N11.3 trillion from N10.4 trillion in the corresponding period of 2025, driven mainly by growth in loans and advances to customers, which stood at N4.6 trillion.
Customer deposits (the bank’s largest liability component), increased 7.11 per cent year-on-year to N7.3 trillion from N6.8 trillion, indicating continued confidence from retail and corporate depositors despite heightened competition within the banking sector.
Total liabilities climbed to N9.9 trillion from N9.3 trillion, while shareholders’ equity strengthened to N1.3 trillion.
Retained earnings rose 42.93 per cent year-on-year to N247.9 billion, reinforcing the bank’s capital position and potentially supporting stronger shareholder returns over the medium term.
Investor sentiment, however, remained cautious following the release of the earnings report.
Shares of Fidelity Bank declined 9.05 per cent during trading on May 26, 2026, coinciding with the publication of the results, as investors reacted to the weaker profitability metrics and concerns around rising funding and credit costs.
Despite the selloff, the stock remains more than 13 per cent higher year-to-date on the Nigerian Exchange, trading at N21.60.
Market participants are expected to closely monitor management commentary during the bank’s next investor briefing, particularly around the sustainability of funding costs, liquidity strategy, and the underlying drivers of the spike in impairment charges.
Attention will also focus on whether the bank can preserve margins in an environment where interest rates remain elevated and competition for deposits intensifies.
