Lagos Nigeria, 14 December 2018 — Global Credit Ratings has today affirmed the national scale ratings assigned to Fidelity Bank Plc of A-(NG) and A2(NG) in the long term and short term respectively; with the outlook accorded as Stable. The ratings are valid until October 2019.
Global Credit Ratings (“GCR”) has accorded the above credit ratings to Fidelity Bank Plc (“Fidelity” or “the bank”) based on the following key criteria:
The ratings of Fidelity are supported by its good financial performance, adequate capitalisation, funding and liquidity metrics as well as improved asset quality position. Fidelity is a mid-sized player in the Nigerian banking sector, with a market share of 4.0% by total industry assets at FY17.
The bank’s asset quality (loans and advances) appears relatively satisfactory, with the gross non-performing loans ratio improving slightly to 6.4% at FY17 (FY16: 6.6%) and strengthened further to 6.0% at 3Q FY18, comparing favourably with industry’s average, albeit above CBN’s tolerable limit of 5%. Amidst the pressure in the macro-economic environment, the asset quality positive trends reflects the bank’s disciplined credit underwriting and collections, as well as enhanced loan recovery mechanism. However, concentration risk by obligor is considered high, with the twenty largest exposures constituting 57.2% of the total loans and advances. Total provision (specific and collective) coverage of impaired loans stood at 52.5% at FY17 (FY16: 50%).
Fidelity’s capitalisation is considered adequate for current risk level. Supported by internal capital generation, shareholders’ funds grew by 9.7% to N203.3bn at FY17. Nonetheless, the bank’s risk-weighted capital adequacy ratio declined by 120bps to 16.0% at FY17 due to amortisation of its subordinated debt and stood at 17.0% at 3Q FY18, against the regulatory minimum of 15%.
Fidelity displayed a relatively liquid balance sheet, with the statutory liquidity ratio maintained above the regulatory requirement of 30% throughout FY17 and nine month period up to 30 September 2018. Furthermore, the ratio of liquid and trading assets to total short-term funding of 29.7% (FY16: 24.3%) compares favourably with the peers’ average at FY17.
Pre-tax profit grew significantly by 83.5% to N20.3bn in FY17, driven by improved yield on government securities and growth in the loan book. Operating expenses declined by 2.2% to N65.7bn, translating to a strengthened cost-to-income ratio of 67.5% (FY16: 77.3%). Consequently, return on average equity and asset rose to 9.7% (FY16: 5.3%) and 1.4% (FY16: 0.8%) in FY17 respectively. In 3Q FY18, the bank delivered a pre-tax profit of N20.1bn, representing 23.6% growth over corresponding period in FY17 and in line with budget on annualised basis.
Upward movement in the ratings could result from further improvement in the bank’s profitability, asset quality, capital and liquidity metrics, as well as significantly enhanced competitive position. However, the ratings would be sensitive to a substantial decline in asset quality, profitability, and liquidity.
NATIONAL SCALE RATINGS HISTORY
Initial rating (February 2001)
Rating outlook: Stable
Last rating (November 2017)
Rating outlook: Stable
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 rating reports (2001-17)
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 being rated; 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 earlier as indicated by the applicable credit rating document.
The ratings were solicited by, or on behalf of, Fidelity Bank Plc, and therefore, GCR has been compensated for the provision of the ratings.
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 ratings above were disclosed to Fidelity Bank Plc with no contestation of/changes to the ratings.
The information received from Fidelity Bank Plc and other reliable third parties to accord the credit ratings included the latest audited annual financial statements as at 31 December 2017 (plus four years of comparative numbers), latest internal and/or external audit report to management, full year detailed budgeted financial statements for 2018, most recent year-to-date management accounts to 30 September 2018, reserving methodologies and capital management policies. In addition, information specific to the rated entity and/or industry was also received.