Lagos Nigeria, 29 November 2019 — 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 2020.
Global Credit Ratings (“GCR”) has accorded the above credit ratings to Fidelity Bank Plc (“Fidelity” or “the bank”) based on the following key criteria:
Fidelity is a mid-sized player within the Nigerian banking space, with an enhanced market share of 4.6% (FY17: 4.0%) based on the industry’s total assets at FY18. While cognisance is taken of the bank’s sustained improvement across most performance metrics, key ratings constraining factor remains the challenging operating and unstable regulatory environment.
Fidelity’s asset quality metrics improved during the review period, largely underpinned by expansion in the loan portfolio, write-offs and intensified recovery efforts. Consequently, gross non-performing loans ratio ended down at 4.8% at 3Q FY19 (FY18: 5.7%), favourably compared with Central Bank of Nigeria’s tolerable limit of 5% and peers’ average. Also, total loan loss provision coverage of impaired loans improved materially to 109.9% at FY18 (FY17: 52.5%). However, concentration risk by obligor remained high, with the twenty largest exposures constituting a substantial 50.1% of the gross loans and advances at FY18.
Total shareholders’ funds declined by 3.4% to N194.4bn at FY18, following the loan loss provisions adjustment to retained earnings on the back of implementation of IFRS 9 accounting standard. This notwithstanding, the bank’s risk weighted capital adequacy ratio increased to 16.7% at FY18 (FY17: 16%) and stood at 16.4% at 3Q FY19, exceeding the 15% statutory requirement.
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.
The bank’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.
Upward movement in the ratings could emanate from further improvement in the bank’s profitability, asset quality, capital and liquidity metrics, as well as significant improvement in the operating environment (including stability in regulatory environment). However, the ratings would be sensitive to a substantial decline in asset quality, profitability, and liquidity metrics.
NATIONAL SCALE RATINGS HISTORY
Initial rating (February 2001)
Rating outlook: Stable
Last rating (November 2018)
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 (2001-18)
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 2018 (plus four years of comparative numbers), latest internal and/or external audit report to management, full year detailed budgeted financial statements for 2019, most recent year-to-date management accounts to 30 September 2019, reserving methodologies and capital management policies. In addition, information specific to the rated entity and/or industry was also received.