GCR Ratings (“GCR”) has affirmed Fidelity Bank Plc’s national scale long-term and short-term issuer credit ratings of A_(NG) and A1_(NG) respectively, Outlook revised to Positive.

Rating Rationale

The ratings affirmation reflects Fidelity Bank Plc’s (“Fidelity” or “the bank”) sustained growth and positive earnings trajectory, well-contained risk position, and a highly stable funding structure. The Positive Outlook is driven by expectations of an improved capital and risk position for the bank relative to peers in the market over the rating horizon.

Fidelity has maintained its strong growth trajectory with a good and stable earnings profile. With a balance sheet size of N3.3 trillion as of December 2021, Fidelity has the highest market share outside of the top five banks in the Nigerian banking sector. The bank has a focus on core banking in the Nigerian market, although that position is expected to evolve in the near term, given the recent acquisition of a UK banking subsidiary to drive offshore lending and the bank’s trade finance offerings. We expect Fidelity to maintain its growth trajectory with a focus on diversification in the near to medium term, which bodes well for its franchise strength and market position.

Capital and leverage for the bank remain within the intermediate range of GCR’s assessment. Over the past year, Fidelity’s capitalisation metrics have remained relatively stable, with the capital adequacy ratio (“CAR”) improving to 20.1% as at December 2021 from 18.2% as at December 2020. The bank’s GCR core capital ratio is expected to register at 17%+ over the rating horizon, factoring in moderate risk-weighted assets (“RWA”) growth and historic dividend payout levels. Fidelity’s capital position is expected to be supported by good levels of internal capital generation over the next 12-18 months.

Risk is a rating positive. Fidelity has maintained relatively low credit losses through the cycle, averaging 0.8% over the review period, which is significantly below the market. Similarly, non-performing loans (“NPL”) have been contained below the 5% tolerance limit, and have maintained a downward trend, from 3.8% as at FY20 to 2.7% at 1H22. Sectorial distribution of the loan book is considered good, with the largest sector – oil and gas, contributing a relatively moderate 26.1% of gross loans at FY21 (FY20: 22.6%) which compares well to peers in the market. However, there is counterparty concentration, as the top twenty loans accounted for 43.2% of the loan book at FY21 (FY20: 47.2%). Also, restructured loans constitute a sizable 22% of the loan book, including some of the largest exposures. Further, FCY exposures are quite material, given that 36.9% of the loan book is FCY denominated as at end-FY21 (end-FY20: 40.0%), although the bank lends mainly to obligors with FCY receivables which provides a degree of natural hedge.

Funding and liquidity assessment is a rating positive, reflecting the bank’s highly stable funding structure. Behaviourally sticky customer deposits dominate the bank’s funding base, contributing over 80.3% through the review period. The deposit book is also supportive of funding costs, given that the relatively inexpensive current and savings account deposits contributed 69.0% to total deposits at FY21 (FY20: 77.4%). Also, the deposit book is diversified, as the top twenty depositors accounted for a moderate 23.9% of total customer deposits at December 2021. Liquidity coverage is considered good, although the metrics have lowered over the past year, reflecting the impact of regulatory cash reserve debits. Accordingly, GCR liquid assets as a proportion of the bank’s wholesale funding base and customer deposits registered at 1.5x and 32.8% respectively, as at December 2021.

Outlook Statement

The Positive Outlook hinges on the expectation that Fidelity’s proposed N10 billion equity injection as well as its internal capital generation relative to the projected growth in RWA would likely uplift our assessment of the bank’s capital position. The bank’s credit losses and NPLs are also expected to remain significantly better than peers in the market in the near term. Such developments will likely result in a rating upgrade.

Rating Triggers

An upward movement in the rating will be triggered by an improvement in the GCR computed core capital ratio to register at the 20% level in the near term. The capital position is expected to be largely unaffected by the potential restructuring costs associated with the recent acquisition of the UK subsidiary. We would also expect to see credit losses and NPLs maintained well below the market average while averting adverse credit migration of the restructured facilities. The outlook will revert to stable if Fidelity’s capitalisation is weighed down by the acquisition of the UK subsidiary and/or if the credit losses and NPLs increase.

Ratings history

Fidelity Bank Plc

Risk score summary

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 Plc. The ratings above 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, as well as 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 Plc and other reliable third parties to accord the credit ratings included:

• The audited financial results as at 31 December 2021;
• Audited interim account as at June 2022;
• Four years of comparative audited numbers;
• Other related documents.