GCR Affirms Fidelity Bank Ratings with Revised Outlook
GCR Ratings (GCR) has affirmed Fidelity Bank Plc’s national scale long and short-term Issuer ratings of A (NG) and A1 (NG) respectively. However, the lender outlook has been revised to stable from positive, according to the rating note.
The top rating agency in emerging markets said rating affirmation of the bank balances a good competitive position, stable funding structure and liquidity against an elevated risk position and a decline in capitalisation metrics, both due to the adverse impact of the Naira devaluation.
Analysts at the rating agency said Fidelity Bank has maintained a strong growth trajectory, ranking as a top Tier 2 bank in the Nigerian banking industry with a balance sheet size of NGN3.9 trillion or USD8.9 billion as of 31 December 2022.
This translated to 5.1%, 5.1% and 7.9% of the banking industry’s total assets, customer deposits and gross loans respectively, according to GCR Ratings.
The rating firm stated that the bank’s franchise is supported by a customer base of over 8 million served through 250 branches, 842 Automated Teller Machines and a strong digital network.
The bank’s operations are dominantly in Nigeria; however, the recent acquisition of a UK banking subsidiary has expanded its geographical reach and is expected to drive offshore lending and trade finance transactions over the medium term.
It said Fidelity bank continues to demonstrate revenue stability on account of the dominance of stable earning sources.
The Nigerian Tier-2 lender’s operating revenue registered at NGN268.5 billion during the first nine months ended 30 September 2023, with net-interest income and non-interest income accounting for 72.6% and 27.4% of the operating revenue respectively.
“Our assessment of Fidelity Bank’s capital and leverage is within the intermediate range”, GCR Ratings said in its latest publication.
As of September 2023, GCR’s core capital ratio registered at 16.8%, representing a decline from 17.2% in 2022, underpinned by the bloating impact of naira devaluation on risk-weighted assets.
Positively, the bank’s loan loss reserve coverage of impaired loans consistently maintained above 100% over the review period, analysts said in the rating note.
“We expect the GCR core capital ratio to remain within the intermediate range over the next 12-18 months, on the back of possible capital injection, moderate risk asset growth and good earnings accretion”.
Meanwhile, analysts at GCR said in the rating note that Fidelity Bank’s risk position is a positive rating factor, underpinned by relatively good asset quality metrics, despite the weak macroeconomic environment.
The bank’s non-performing loans (NPLs) and credit loss ratios both inched up to 3.7% and 1.7% respectively as of September 2023, largely reflecting the general impact of naira devaluation.
In 2023, additional collective provisions on the loan portfolio were prudently made in view of prevailing macroeconomic challenges faced by businesses and households, the rating note reads.
GCR said counterparty concentration remained, with the twenty largest obligors accounting for 45.2% of gross loans as of September 2023, which is a steep increase when compared with 38.5% in 2022.
Analysts at the rating agency revealed that five of these were in breach of single obligor limit of 20% of shareholder’s funds, although the bank currently enjoys regulatory forbearance on some of these exposures.
Also, restructured loans constituted a modest 10.7% of the loan book, including some of the largest obligors, and are performing in line with the restructured terms.
The bank’s foreign currency (FCY) exposures accounted for 41.3% of gross loans as of 30 September 2023, up from 32.4 %.
To stem FX risk, the rating note revealed that Fidelity Bank continues to extend FCY loans mainly to obligors with FCY receivables which provides a degree of natural hedge.
Overall, GCR analysts said they expect Fidelity Bank to maintain relatively good asset quality metrics over the rating horizon, although the loan portfolio is susceptible to the weak macroeconomic climate.
“Our assessment of funding and liquidity is positive to the rating. Fidelity Bank has a stable funding structure with relatively sticky customer deposits constituting 86.4% of the funding base as of 30 September 2023 versus 89.0% in December 2022”.
In addition, Fidelity bank customer deposits have grown steadily over the years, registering a 3-year average growth of 26.6% to N3.4 trillion or USD4.5 billion as of September 2023, the rating note said.
This was largely driven by the low-cost deposit mobilisation strategy; thus, supporting the higher composition of the current and savings account (CASA) deposits at 94.4% of customer deposits and a moderate cost of fund of 4.4%.
Additionally, GCR Rating said the deposit book is well diversified with the top twenty depositors accounting for a lower 14.9% of the customer deposits as of 31 December 2022, dropped from 23.9% in 2021.
The balance sheet is sufficiently liquid; GCR liquid assets coverage of customer deposits and wholesale funding registered at 36.1% and 2.7x respectively as of 30 September 2023.
“Looking ahead, we expect the bank to maintain its stable funding structure and adequate liquidity over the next 12 to 18 months”, GCR said in the note.
A stable outlook reflects GCR Ratings’ expectations that Fidelity Bank’s financial profile would remain strong despite the challenges in the operating environment.
“We expect NPL and credit losses ratios to be well contained over the rating horizon while funding and liquidity metrics remain stable”, the rating note said. Reps To Investigate N200bn Expenditure On Postponed 2023 Census