GCR Affirms Fidelity Bank Plc’s rating of A-(NG); Outlook Stable.

17 Dec 2015 In Rating Notifications

GCR Affirms Fidelity Bank Plc’s rating of A-(NG); Outlook Stable.

Lagos Nigeria, 17 December 2015 — Global Credit Ratings has today affirmed the national scale long term rating assigned to Fidelity Bank Plc of A-(NG) and downgraded the national scale short term rating to A2(NG); with the outlook accorded as Stable. The ratings are valid until November 2016.

RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit ratings to Fidelity Bank Plc (“Fidelity” or “the bank”) based on the following key criteria:

The ratings reflect the status of Fidelity as a mid-tier bank in Nigeria, with a market share of 4.3% (FYE13: 4.4%) by total industry assets at 31 December 2014. The bank’s stable profitability over the review period, asset quality metrics which are at acceptable levels relative to peers, and improved capitalisation, were also factored into the ratings.

The bank’s risk weighted capital adequacy ratio of 24.2% at FYE14 (FYE13: 21.8%) is considered strong, and well above the regulatory minimum of 15%. Subsequent to 2014, Fidelity raised N30bn in 7-year subordinated unsecured local currency bonds, bringing total capital to N270.8bn at 3Q F15. Hence, Fidelity’s capital is adequate for its current risk level.

Asset quality came under pressure during F14, with the bank’s impaired loans rising by 47.9% to N24.4bn at year end. This was triggered by newly classified loans within the telecommunication, retail and manufacturing sectors. The bank’s non-performing loan (“NPL”) ratio rose to 4.4% at FYE14 (FYE13: 3.7%), with a reduced total provision coverage ratio of 71.6% (FYE13: 100.6%). According to management, a stricter risk selection process and enhancement of its recovery mechanisms have brought the NPL ratio to 3.7% at 3Q F15, and this is expected to remain unchanged by FYE15.

Reflecting the liquidity constraints posed by Central Bank of Nigeria’s (“CBN”) monetary policy stances during F14, Fidelity reported a lower liquidity ratio of 38% (FYE13: 45.7%), though above the regulatory threshold of 30%. At 3Q F15, the position declined further to 33.4%. The Federal Government of Nigeria’s (“FGN”) directives on the Treasury Single Account (“TSA”) which has led to a gradual withdrawal of all public sector funds from the Nigeria financial market, is expected to further impact the bank’s liquidity profile by FYE15.

Underpinned by higher yields on earning assets, lower funding costs, and moderate operating expenses, the bank delivered a higher net profit after tax of N13.8bn (F13: N7.7bn) in F14. At 3Q F15, Fidelity reported a pre-tax profit of N13.8bn, translating to 83.3% of the F15 budget. Although, management expects improved performance by FYE15, challenging operating conditions in the Nigerian banking sector pose major threats to the achievement of the full year F15 budget.

The challenging operating conditions (including CBN’s monetary policy stances, fiscal headwinds posed by lower oil prices and the ongoing implementation of the FGN’s directives on TSA) limit the likelihood of a rating upgrade in the medium term. However, significantly enhanced market position would be favourably considered. A rating downgrade could emanate from a substantial decline in profitability and/or liquidity.

NATIONAL SCALE RATINGS HISTORY

Initial rating (February 2001)
Long-term: BBB+(NG)
Short-term: A2(NG)
Rating outlook:  Stable

Last rating (December 2014)
Long-term: A-(NG)
Short-term: A1-(NG)
Rating outlook: Stable


ANALYTICAL CONTACTS

Primary Analysts
Femi Atere/Julius Adekeye
Credit Analyst/Senior Credit Analyst
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Committee Chairperson
Dave King
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APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Global Criteria for Rating Banks and Other Financial Institutions, updated March 2015
Nigerian Banking Sector Bulletin, 2014
Fidelity rating reports (2001-14)
Glossary of Terms/Ratios, February 2015


RATING LIMITATIONS AND DISCLAIMERS

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://GLOBALRATINGS.COM.NG/UNDERSTANDING-RATINGS. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT HTTP://GLOBALRATINGS.COM.NG/RATINGS-INFO/RATINGS-SCALES-DEFINITIONS. 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 AT WWW.GLOBALRATINGS.COM.NG


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 2014 (plus three years of comparative numbers), latest internal and/or external audit report to management, full year detailed budgeted financial statements for 2015, most recent year-to-date management accounts to 30 September 2015, reserving methodologies and capital management policies. In addition, information specific to the rated entity and/or industry was also received.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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://GLOBALRATINGS.COM.NG/UNDERSTANDING-RATINGS. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT HTTP://GLOBALRATINGS.COM.NG/RATINGS-INFO/RATINGS-SCALES-DEFINITIONS. 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 THE UNDERSTANDING RATINGS SECTION OF THIS SITE.

 

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://GLOBALRATINGS.COM.NG/UNDERSTANDING-RATINGS. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT HTTP://GLOBALRATINGS.COM.NG/RATINGS-INFO/RATING-SCALES-DEFINITIONS. 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 THE UNDERSTANDING RATINGS SECTION OF THIS SITE.

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