Fidelity Bank Gets Rating Upgrade With Stable Outlook
Tier-2 lender, Fidelity Bank Plc rating has been upgraded from B- negative to B+, according to a recent rating report by Fitch Ratings with a stable outlook. The bank which accounts for 6% of Nigerian banking assets is noted to be exposed to high credit concentration.
The upgrade reflects Fidelity’s improving business profile and resilient financial metrics, the rating note added.
According to the rating note, the bank’s strong balance sheet growth in recent years has improved the Tier-2 lender’s market shares, which Fitch analysts said should rise further but remain below the five largest banks.
Fidelity Bank’s single-borrower credit concentration is high enough to trigger operational risks, according to the rating note; noting that 20 largest customer loans represent 43% of gross loans in the financial year 2021.
..This exposes the bank to event risk, Fitch Ratings said, adding that Fidelity Bank’s exposure to the oil and gas sector is also high, representing 26% of gross loans.
According to Fitch Ratings, the bank’s stage 3 loans ratio which settled at 2.8% at the end of the first quarter in 2022 has been supported by strong lending growth and is below the banking sector average.
It stated that specific loan loss allowance coverage of impaired loans that printed at 72% in the first quarter of 2022 is healthy in view of collateral coverage.
“We expect the bank’s impaired loans ratio to remain at around 3% in 2022-23, supported by stable operating conditions”.
Fidelity Bank’s profitability is seen as reasonable. Fitch stated that operating returns on risk-weighted assets (RWA) have averaged 2.1% over the past four full years.
They improved to 2.5% in 2021 from 2.1% in 2020, supported by a significant reduction in impairment charges. Fitch analysts said they expect profitability to continue improving on the back of higher interest rates and stable credit performance.
In terms of capitalisation, Fidelity’s Fitch Core Capital ratio at 18.6% in the first quarter of 2022 is higher than most Nigerian medium and small banks and is considered adequate in view of its risk profile, the rating note stated.
It explained that the ratio declined from 19.1% at the end of 2020 as a result of strong loan growth and lower internal capital generation driven by mark-to-market losses of N5 billion which translates to 2% of its equity position.
It said Fidelity Bank’s customer deposit base comprises a fairly high percentage of current and savings accounts – 75% of total deposits in 2021- and a moderate proportion of consumer deposits (26%).
The rating note stated that Fidelity Bank’s single-depositor concentration is high, posing risks to its funding profile. It said non-deposit funding is high by domestic standards at around 30% of total funding in the financial year 2021, reflecting Eurobond issuance of USD800 million and funds for on-lending raised mainly from the Central Bank of Nigeria.
Fitch has also upgraded Fidelity’s National Long-Term Rating to ‘A(nga)’ from ‘BBB+(nga)’, reflecting the bank’s increased creditworthiness relative to other issuers in Nigeria. # Fidelity Bank Gets Rating Upgrade with Stable Outlook