Johannesburg, 30 July 2021 – GCR Ratings (“GCR”) has affirmed Fidelity Bank Ghana Limited’s national scale long term and short term issuer ratings of A(GH) and A1(GH) respectively, with a Positive Outlook.
|Rated Entity||Rating class||Rating scale||Rating||Outlook/Watch|
|Fidelity Bank Ghana Limited||Long Term issuer||National||A(GH)||Positive Outlook|
|Short Term issuer||National||A1(GH)|
The analysis on Accra based- Fidelity Bank Ghana Limited (“FBL Ghana”) reflects the strengths and weaknesses of the wider Fidelity Limited Group. The ratings reflect the bank’s sound domestic business profile supported by the bank’s above average distribution network, good spread of local geographic diversification, stable funding structure and better than industry average asset quality. The positive outlook factors sound capitalisation supported by robust internal capital generation and good liquidity levels.
The business profile is a ratings positive, supported by the bank’s position as one of the top 5 banks in Ghana. At 31 December 2020, FBL Ghana was the 5th largest bank by deposits with a market share of 6.3% (FY19: 7.3%) and advances 5.2% (FY19: 4.4%). Furthermore, the bank has a good local presence supported by a large local distribution network. However, the group’s cost of funds are structurally higher than some other Ghanaian top tier banks (4.3% at FY2020). We expect cost of funds to be sustained in the range of 4% to 5% against a top tier range of 2% to 3% over the next 12-18 months. The information flow during the current process was a restraint to the business profile score of the bank.
The group is adequately capitalised. We forecast a GCR capital ratio of between 22% and 24% over the next 12 to 18 months, balancing our expectations of good internal capital generation of between 35% and 40%, outpacing risk weighted asset growth over the rating horizon; and over 60% interest income from government debt securities. We also factor revenue stability risk characterised by high source concentration and a material exposure to market sensitive income (62% at 31 March 2021) in the form of yields from government currency bonds/ securities. The ratings may improve should the bank diversify revenue sources to levels below 40% maintaining internal capital generation of over 23%. Loan loss reserve coverage of stage 3 loans including haircut collateral is currently considered adequate but could be exposed to asset revaluation pressures.
The risk position has come under pressure amidst a deterioration in the non-performing loan (“NPL”) ratio to 8.6% at March 2021 from 1.8% at 31 December 2019 (8.1% at 31 December 2020), albeit still better than the industry average of 15.5%. GCR expects some improvements in the regulatory NPL ratio over the next 12-18 months following normalisation of a key NPL exposure. However, we believe IFRS 9 NPL’s could continue to rise as the full impact of the pandemic is realised, with lower regulatory reliefs. Foreign exchange (“FX”) risk is considered minimal. The FX lending book was c.39% at 31 December 2020 and is adequately hedged by swaps.
Funding and liquidity is a ratings positive reflecting high liquid asset coverage of the funding base. The funding structure is fairly stable and broadly comparable to some top tier banks in Ghana, with retail deposits accounting for c.66% of the customer deposits. The GCR long term funding ratio and stable funding ratios were 109%% and 92% respectively at 31 March 2021. Liquidity is very good. GCR liquid asset coverage of customer deposits improved to 74% at 31 March 2021 from 68% at 31 December 2019. Furthermore, the GCR liquid asset coverage of wholesale funding was 18x (FY19: 6x) at 31 March 2021.
The outlook is positive factoring sound capitalisation supported by robust internal capital generation and good liquidity levels. We expect that FBL Ghana will relatively outperform the market in terms of earnings and liquidity over the next 12 to 18 months despite the strain of the operating environment on the financial profile. Furthermore, we expect capitalisation to range between 22% and 24%, supported by internal capital generation outpacing risk weighted asset growth, and rising cost of risk. We anticipate for liquidity to remain a rating positive. We also expect information flow to improve and alongside the aforementioned, this could lead to a ratings uplift over the outlook horizon.
We could raise the ratings if FBL Ghana raises and maintains a higher GCR capital ratio (above 23,5%) over the outlook horizon, alongside a sustained reduction in market sensitive income to below 40% of operating revenues, plus if liquidity is maintained at very high levels, asset quality improves, and the levels of management interaction and transparency intensifies. We could lower the ratings if: 1) credit losses are sustained at levels above 5% in the outlook horizon; 2) asset quality deteriorates in line with or below industry averages; or 3) the company records internal capital generation at levels lower or in line with risk weighted asset growth.
|Primary analyst||Vimbai Mandebvu||Senior Financial Institutions Analyst|
|Johannesburg, ZA||VimbaiM@GCRratings.com||+27 11 784 1771|
|Committee chair||Matthew Pirnie||Group Head of Ratings|
|Johannesburg, ZA||MatthewP@GCRratings.com||+27 11 784 1771|
Related criteria and research
|Criteria for the GCR Ratings Framework, May 2019|
|Criteria for Rating Financial Institutions, May 2019|
|GCR Ratings Scales, Symbols & Definitions, May 2019|
|GCR Country Risk Scores, July 2021|
|GCR Financial Institutions Sector Risk Score, June 2021|
Fidelity Bank Ghana Limited
Risk score summary
|Rating Components & Factors||Risk Scores|
|Country risk score||3.50|
|Sector risk score||3.00|
|Management and governance||(0.25)|
|Capital and Leverage||0.00|
|Funding and Liquidity||1.00|
|Balance Sheet||Also known as Statement of Financial Position. A statement of a company’s assets and liabilities provided for the benefit of shareholders and regulators. It gives a snapshot at a specific point in time of the assets the company holds and how they have been financed.|
|Capital||The sum of money that is invested to generate proceeds.|
|Cash||Funds that can be readily spent or used to meet current obligations.|
|Debt||An obligation to repay a sum of money. More specifically, it is funds passed from a creditor to a debtor in exchange for interest and a commitment to repay the principal in full on a specified date or over a specified period.|
|Diversification||Spreading risk by constructing a portfolio that contains different exposures whose returns are relatively uncorrelated. The term also refers to companies which move into markets or products that bear little relation to ones they already operate in.|
|Exposure||Exposure is the amount of risk the holder of an asset or security is faced with as a consequence of holding the security or asset. For a company, its exposure may relate to a particular product class or customer grouping. Exposure may also arise from an overreliance on one source of funding. In insurance, it refers to an individual or company’s vulnerability to various risks|
|Income||Money received, especially on a regular basis, for work or through investments.|
|Interest||Scheduled payments made to a creditor in return for the use of borrowed money. The size of the payments will be determined by the interest rate, the amount borrowed or principal and the duration of the loan.|
|Issuer||The party indebted or the person making repayments for its borrowings.|
|Leverage||With regard to corporate analysis, leverage (or gearing) refers to the extent to which a company is funded by debt.|
|Liquidity||The speed at which assets can be converted to cash. It can also refer to the ability of a company to service its debt obligations due to the presence of liquid assets such as cash and its equivalents. Market liquidity refers to the ease with which a security can be bought or sold quickly and in large volumes without substantially affecting the market price.|
|Long Term Rating||See GCR Rating Scales, Symbols and Definitions.|
|Margin||A term whose meaning depends on the context. In the widest sense, it means the difference between two values.|
|Market||An assessment of the property value, with the value being compared to similar properties in the area.|
|Maturity||The length of time between the issue of a bond or other security and the date on which it becomes payable in full.|
|Rating Outlook||See GCR Rating Scales, Symbols and Definitions.|
|Risk||The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.|
|Short Term Rating||See GCR Rating Scales, Symbols and Definitions.|
|Short Term||Current; ordinarily less than one year.|
SALIENT POINTS OF ACCORDED RATING
GCR affirms that a.) no part of the rating process was influenced by any other business activities of the credit rating agency; b.) the ratings were based solely on the merits of the rated entity, security or financial instrument being rated; and c.) such ratings were an independent evaluation of the risks and merits of the rated entity, security or financial instrument.
The credit ratings have been disclosed to Fidelity Bank Ghana Limited. The rating above was solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the ratings.
Fidelity Bank Ghana Limited participated in the rating process via video conference management meetings, and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.
The information received from Fidelity Bank Ghana Limited and other reliable third parties to accord the credit ratings included:
- The audited financial results to 31 December 2020
- Unaudited financial results as at 31 March 2021
- Breakdown of facilities
- Banking sector information and Industry comparative data
- Other related documents.