Lagos Nigeria, 29 November 2019 — Global Credit Ratings has today affirmed the national scale long term rating of BBB (NG); with the outlook accorded as Stable. The rating is valid until October 2020.
Global Credit Ratings (“GCR”) has accorded the above credit rating based on the following key criteria:
Given the direct correlation between the financial performance of the Issuer and its ability to punctually meet its obligations under the Issue (considering the unsecured nature of the debt), cognisance was taken of Fidelity’s competitive strengths, historical and current financial profile and performance. Fidelity is a mid-sized player in the Nigerian banking sector, with a market share of 4.6% by total industry assets at FY18.
Fidelity displayed a relatively low liquidity risk at FY18, given that a sizeable 42.7% of its assets were held in cash and highly liquid investment securities. Furthermore, the bank’s statutory liquidity ratio ranged between 30.2% and 42.4% throughout FY18 (ending the year at 39.8%), against the regulatory minimum of 30%. In addition, the contractual matching of assets and liabilities reflects a sound liquidity buffer across most maturity bucket, with liquidity buffer amounting to N80.4bn within the critical less than one-month maturity bucket.
Fidelity’s key profitability indicators improved in FY18, with pre-tax profit increasing by 30.6% to N25.1bn, on account of a notable 62.7% decline in impairment charge. While total operating income grew by 4.3%, operating expenses rose by 8.0%, translating to a higher cost to income ratio of 71.1% (FY17: 68.6%). Overall, return on average equity and asset improved to 11.6% and 1.5% (FY17: 9.2% and 1.3%) respectively. As at 3Q FY19, the bank reported a pre-tax profit of N23bn, representing 13.3% growth over corresponding period in FY18 and in line with budget on annualised basis.
According to the latest Trustees’ report as at 25 October 2019, the Bonds have been performing in line with the covenants set by the Issuer so far.
Given the direct relationship between the performance of the Issuer and its ability to punctually meet its obligations under the Issue, the accorded rating would be sensitive to a positive rating action on the Issuer. Non-compliance with set covenants, and/or a downgrade of the Issuer’s rating, could trigger a negative rating action on the Bonds.
NATIONAL SCALE RATINGS HISTORY
Initial rating (May 2005)
Last rating (December 2018)
Yinka Adeoti/Julius Adekeye
Credit Analyst/Senior Credit Analyst
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Criteria for Rating Banks and Other Financial Institutions, updated March 2017
Fidelity Bank Plc rating report (2019)
Glossary of Terms/Ratios, February 2016
RATING LIMITATIONS AND DISCLAIMERS
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; c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument; and d.) the validity of the rating is for a maximum of 12 months, or as indicated by the applicable credit rating document.
The rating was solicited by, or on behalf of, Fidelity Bank Plc, and therefore, GCR has been compensated for the provision of the rating.
Fidelity Bank Plc 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 above was disclosed to Fidelity Bank Plc with no contestation of/changes to the rating.
The information received from Fidelity Bank Plc to accord the credit rating included the Issuer’s 31 December 2018 audited annual financial statements (plus four years of comparative numbers), management accounts for the nine-month period to 30 September 2019, the Trust Deed for the Bond Issuance, the offer prospectus, the Trustees’ performance report, up to 13 May 2019, as well as the Prospectus.