Johannesburg, 20 Aug 2015 – Global Credit Ratings has today assigned national scale ratings to Fidelity Bank Ghana Limited of A-(GH) and A1-(GH) in the long term and short term respectively; with the outlook accorded as Stable. The rating(s) are valid until July 2016.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating(s) to Fidelity Bank Ghana Limited (“Fidelity” and/or “the bank”) based on the following key criteria:
The accorded ratings reflect Fidelity’s established and growing local footprint, increasing capitalisation and adequate loan loss reserves. These are however, partially offset by the highly cyclical commodity-driven economy, current electricity crisis, regional instability and shifts in global risk sentiment, which continue to negatively impact the local economy.
During F14, Fidelity completed a USD127.3m capital raising exercise in the form of USD67.3m in Tier 1 capital and USD60m in Tier 2 capital. Consequently, the bank’s capital base more than doubled (growth of 150.6%) to GHC390.5m at FYE14. The capital raise saw the establishment of partnerships with several African focused investment funds through equity stakes. The Tier 2 capital was in the form of a seven year USD60m subordinated term loan facility from reputable development finance institutions. The capital was raised to support the bank’s next growth phase and entrenchment as a top tier bank in Ghana. The bank’s mission is to be a top three bank by 2018 from its current sixth position. Fidelity reported a total risk weighted capital adequacy ratio (“CAR”) of 24.5% (FYE13: 13.4%) and Tier 1 ratio of 16.3% (FYE13: 13.4%) at FYE14, which was well above the statutory minima of 10% and 8% respectively (as required under Basel I).
On 1 October 2014, Fidelity acquired ProCredit Savings and Loans Company Limited (“ProCredit”), a non-banking financial institution with a strong small-to-medium enterprises (“SMEs”) platform. The rationale behind the acquisition was to gain traction in the SME segment and leverage the distribution network of ProCredit, which had a total of 24 branches and 34 ATMs at the time of acquisition. Fidelity has since amalgamated the operations of ProCredit into the bank effective April 2015.
Asset quality indicators improved during F14 on the back of loan write-offs. This, coupled with 97.2% gross loan growth, saw a decline in the gross non-performing loan (“NPL”) ratio to 2.4% (FYE13: 5.5%) at FYE14 (industry average 11.3%). Arrears coverage by provisions increased to 97.3% at FYE14 (FYE13: 86%). Relative to capital, net NPLs remained insignificant at less than 0.1% at FYE14. However, cognisance must be taken of the general lag in the arrears experience following accelerated levels of credit growth.
Fidelity recorded robust pre-tax profit growth (82.2%) in F14 on the back of strong loan book expansion, a stable net interest margin and strong non-interest income growth supported by significant gains on foreign exchange trading. The cost/income ratio declined to 56.9% in F14 (F13: 59.7%), but remained well above the industry average of 46.5%. Overall, the ROaE and ROaA amounted to 42.3% and 3.5%, respectively for F14 (industry average 42.1% and 6.1%). The liquidity ratio was maintained well above the prudential minimum of 20% throughout F14 and 1H F15.
GCR has taken note of the operational changes in the business, including the enhanced funding profile of the bank. The appropriate deployment of capital/funding, a positive earnings trend (while maintaining credit protection factors), the diversification of income streams, a reduction in funding costs, and a further strengthening of the bank’s competitive position in the domestic market, could lead to an upward ratings migration. However, the ratings could face downward pressure if earnings and asset quality (as reflected by NPLs in both nominal and percentage terms) deteriorate due to inadequately controlled growth and/or weak credit administration. Furthermore, adverse economic developments on the back of a weak global market, could impact the overall financial condition of the bank and the financial sector in general.
NATIONAL SCALE RATINGS HISTORY
Initial/last rating (not applicable)
Long-term: first time/new rating
Short-term rating: first time/new rating
Rating outlook: first time/new rating
Sector Head: Financial Institution Ratings
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Criteria for Rating Banks and Other Financial Institutions, updated March 2015
RATING LIMITATIONS AND DISCLAIMERS
ALL GCR’S CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.NET/UNDERSTANDING-RATINGS. IN ADDITION, GCR’S RATING SCALES AND DEFINITIONS ARE ALSO AVAILABLE FOR DOWNLOAD AT THE FOLLOWING LINK: HTTP://GLOBALRATINGS.NET/RATINGS-INFO. GCR’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, PUBLICATION TERMS AND CONDITIONS AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE AT HTTP://GLOBALRATINGS.NET.
SALIENT FEATURES OF ACCORDED RATINGS
GCR affirms that a.) no part of the rating was influenced by any other business activities of the credit rating agency; b.) the rating was based solely on the merits of the rated entity, security or financial instrument being rated; and c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument.
Fidelity Bank Ghana Limited participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.
The credit rating/s has been disclosed to Fidelity Bank Ghana Limited with no contestation of the rating.
- Audited financial results of the bank as at 31 December 2014 (plus four years of comparative figures)
- Unaudited interim results of the bank as at 31 May 2015
- Budgeted financial statements for 2015
- Latest internal and/or external audit report to management
- Reserving methodologies
- A breakdown of facilities available and related counterparties
- Corporate governance and enterprise risk framework
- Capital management policy
- Industry comparative and regulatory framework
The ratings above were solicited by, or on behalf of, Fidelity Bank Ghana Limited, and therefore, GCR has been compensated for the provision of the ratings.
GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S FINANCIAL INSTITUTIONS GLOSSARY
|Arrears||An overdue debt, liability or obligation. An account is said to be ‘in arrears’ if one or more payments have been missed in transactions where regular payments are contractually required.|
|Asset Quality||Asset quality refers primarily to the credit quality of a bank’s earning assets, the bulk of which comprises its loan portfolio, but will also include its investment portfolio as well as off balance sheet items. Quality in this context means the degree to which the loans that the bank has extended are performing (i.e. being paid back in accordance with their terms) and the likelihood that they will continue to perform.|
|Basel I||Basel Committee regulations, which set out the minimum capital requirements of financial institutions with the goal of minimising credit risk.|
|Capital Adequacy||A measure of the adequacy of an entity’s capital resources in relation to its current liabilities and also in relation to the risks associated with its assets. An appropriate level of capital adequacy ensures that the entity has sufficient capital to support its activities and that its net worth is sufficient to absorb adverse changes in the value of its assets without becoming insolvent.|
|Capital Base||The issued capital of a company, plus reserves and retained profits.|
|Credit Rating||An opinion regarding the creditworthiness of an entity, a security or financial instrument, or an issuer of securities or financial instruments, using an established and defined ranking system of rating categories.|
|Credit Rating Agency||An entity that provides credit rating services.|
|Credit Risk||The possibility that a bond issuer or any other borrowers (including debtors/creditors) will default and fail to pay the principal and/or interest when due.|
|Equity||Equity (or shareholders’ funds) is the holding or stake that shareholders have in a company. Equity capital is raised by the issue of new shares or by retaining profit.|
|Financial Institution||An entity that focuses on dealing with financial transactions, such as investments, loans and deposits.|
|Liabilities||All financial claims, debts or potential losses incurred by an individual or an organisation.|
|Liquidity Risk||The risk that a company may not be able to meet its financial obligations or other operational cash requirements due to an inability to timeously realise cash from its assets. Regarding securities, the risk that a financial instrument cannot be traded at its market price due to the size, structure or efficiency of the market.|
|Long term||Not current; ordinarily more than one year.|
|National Scale Rating||The national scale provides a relative measure of creditworthiness for rated entities only within the country concerned. Under this rating scale, a ‘AAA’ long term national scale rating will typically be assigned to the lowest relative risk within that country, which in most cases will be the sovereign state.|
|Net Interest Margin||Net interest margin is the net interest income divided by average interest earning assets.|
|Non-Performing Loan||When a borrower is overdue, typically 90+ days in arrears or as defined by the lender, or in the transaction documents.|
|Performing Loan||A loan is said to be performing if the borrower is paying the interest on it on a timely basis.|
|Provision||The amount set aside or deducted from operating income to cover expected or identified loan losses.|
|Rating Outlook||A Rating outlook indicates the potential direction of a rated entity’s rating over the medium term, typically one to two years. An outlook may be defined as: ‘Stable’ (nothing to suggest that the rating will change), ‘Positive’ (the rating symbol may be raised), ‘Negative’ (the rating symbol may be lowered) or ‘Evolving’ (the rating symbol may be raised or lowered).|
|Shareholder||An individual, entity or financial institution that holds shares or stock in an organisation or company.|
|Short Term||Current; ordinarily less than one year.|
|Write-off||The total reduction in the value of an asset.|
For a detailed glossary of terms utilised in this announcement please click here