Announcements Financial Institutions Rating Alerts

GCR upgrades Fidelity Bank Ghana Limited’s national scale ratings reflecting good liquidity and resilient performance; Outlook Stable

Rating action

Johannesburg, 23 July 2020 – GCR Ratings (“GCR”) has upgraded Fidelity Bank Ghana Limited’s national scale long term and short term ratings to A(GH) and A1(GH) from A-(GH) and A2(GH) respectively, with a Stable Outlook.

Rated Entity Rating class Rating scale Rating Outlook/Watch
Fidelity Bank Ghana Limited Long Term issuer National A(GH) Stable Outlook
Short Term issuer National A1(GH)

Rating rationale

The analysis on Accra based- Fidelity Bank Ghana Limited (“FBL Ghana”) reflects the strengths and weaknesses of the wider Fidelity Limited Group. The upgrade factors in improvement in asset quality relative to domestic peers and sustained good liquidity. The ratings also reflect the bank’s sound domestic business profile supported by the bank’s above average distribution network, good spread of local geographic diversification, adequate capitalisation and stable funding structure.

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 2019, market share of industry deposits was 7.3% (FY18: 7.6%) and advances 4.4% (FY18: 4.2%). 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. We expect cost of funds to be sustained in the range of 3% to 3.5% against a top tier range of 1.5% to 2% over the next 12-24 months. Business line and geographic diversification is in line with industry averages.

The group is considered to be adequately capitalised. We forecast a GCR capital ratio of between 23% and 25% over the next 12 to 18 months, balancing our expectations of 1) good internal capital generation of between 25% and 30%, outpacing risk weighted asset growth over the rating horizon; 2) an increase in credit losses to c.5% in 12 months moderating to c.3% over the next 24 months; and 3) approximately 65% to 70% interest income from government debt securities. Earnings quality is a moderate ratings negative reflected by revenue stability risk characterised by high source concentration and a material exposure to market sensitive income (69%). Yields from government currency bonds/ securities account for the bulk of market income, classified as such because the activities are supported by cross currency swaps and short to medium term debt from financial institutions. 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 is sound, balancing the probability of asset quality deterioration due to the COVID-19 related economic shock and modest oil prices, and the better than market gross non-performing loans (NPLs). The bank recorded a regulatory NPLs ratio of 2.1% at 31 March 2020 (FY19: 1.8%) against the industry average 14.5% and rated peers. Initial assessments of the potential impact of the COVID-19 pandemic indicate that the bank will not be immune to the sector-wide challenges which include credit extension and slower loan repayments. Foreign exchange (FX) risk is considered minimal. The FX lending book was c.38% at 31 March 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.60% of the customer deposits. The GCR long term funding ratio and stable funding ratios were 65.4% and 84.8% respectively at 31 March 2020. Liquidity is very good. FX liquid asset coverage improved to 62% at 31 December 2019 from a 3 year average of 10%. At 31 March 2020, GCR liquid asset coverage of wholesale funding and customer deposits was 2x and 137% respectively.

Outlook statement

The outlook is stable balancing the strain of the operating environment on the financial profile and our expectations that FBL Ghana will relatively outperform the market in terms of earnings and liquidity over the next two years. Furthermore, we expect the capitalisation to range between 23% and 25%, supported by internal capital generation outpacing risk weighted asset growth, and rising cost of risk. We expect credit losses to increase to around 5% in 2020 and improve to 3% in 2021, as the operating volatility subsides without a material adverse impact on loan book exposures. We anticipate for liquidity to remain a ratings positive. The business profile is not expected to change materially over the outlook horizon.

Rating triggers

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. Upward ratings potential is unlikely over the rating horizon. However, we could raise the ratings if FBL Ghana raises and maintains a higher GCR capital ratio (above 23%) over the outlook horizon, alongside a sustained reduction in market sensitive income to below 40% of operating revenues.

Analytical contacts

Primary analyst Vimbai Muhwati 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, May 2020
GCR Financial Institutions Sector Risk Score, July 2020

Ratings history

Fidelity Bank Ghana Limited

Rating class Review Rating scale Rating Outlook/Watch Date
Long Term issuer Initial National A-(GH) Stable Outlook July 2015
Short Term issuer Initial National A1-(GH) July 2015
Long Term issuer Last National A-(GH) Stable Outlook December 2019
Short Term issuer Last National A2(GH) December 2019

Risk score summary

Rating Components & Factors Risk Scores
Operating environment 6.00
Country risk score 3.50
Sector risk score 2.50
Business profile 1.00
Competitive position 1.00
Management and governance 0.00
Financial profile 0.75
Capital and Leverage (0.25)
Risk 0.00
Funding and Liquidity 1.00
Comparative profile 0.00
Group support 0.00
Government support 0.00
Peer analysis 0.00
Total Score 7.75

Glossary

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 2019
  • Four years of comparative audited numbers
  • Unaudited financial results as at 31 March 2020
  • Breakdown of facilities
  • Banking sector information and Industry comparative data
  • Other related documents.
image_pdfPDF View


ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK:HTTP://GCRRATINGS.COM. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT WWW.GCRRATINGS.COM/RATING_INFORMATION. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR's CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THIS SITE.

CREDIT RATINGS ISSUED AND RESEARCH PUBLICATIONS PUBLISHED BY GCR, ARE GCR’S OPINIONS, AS AT THE DATE OF ISSUE OR PUBLICATION THEREOF, OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. GCR DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL AND/OR FINANCIAL OBLIGATIONS AS THEY BECOME DUE. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: FRAUD, MARKET LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND GCR’S OPINIONS INCLUDED IN GCR’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND GCR’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND GCR’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL OR HOLD PARTICULAR SECURITIES. NEITHER GCR’S CREDIT RATINGS, NOR ITS PUBLICATIONS, COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. GCR ISSUES ITS CREDIT RATINGS AND PUBLISHES GCR’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING OR SALE.

Copyright 2019 GCR INFORMATION PUBLISHED BY GCR MAY NOT BE COPIED OR OTHERWISE REPRODUCED OR DISCLOSED, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT GCR’S PRIOR WRITTEN CONSENT. Credit ratings are solicited by, or on behalf of, the issuer of the instrument in respect of which the rating is issued, and GCR is compensated for the provision of these ratings. Information sources used to prepare the ratings are set out in each credit rating report and/or rating notification and include the following: parties involved in the ratings and public information. All information used to prepare the ratings is obtained by GCR from sources reasonably believed by it to be accurate and reliable. Although GCR will at all times use its best efforts and practices to ensure that the information it relies on is accurate at the time, GCR does not provide any warranty in respect of, nor is it otherwise responsible for, the accurateness of such information.GCR adopts all reasonable measures to ensure that the information it uses in assigning a credit rating is of sufficient quality and that such information is obtained from sources that GCR, acting reasonably, considers to be reliable, including, when appropriate, independent third-party sources. However, GCR cannot in every instance independently verify or validate information received in the rating process. Under no circumstances shall GCR have any liability to any person or entity for (a) any loss or damage suffered by such person or entity caused by, resulting from, or relating to, any error made by GCR, whether negligently (including gross negligence) or otherwise, or other circumstance or contingency outside the control of GCR or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits) suffered by such person or entity, as a result of the use of or inability to use any such information. The ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained in each credit rating report and/or rating notification are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. Each user of the information contained in each credit rating report and/or rating notification must make its own study and evaluation of each security it may consider purchasing, holding or selling. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY GCR IN ANY FORM OR MANNER WHATSOEVER.