(The following statement was released by the rating agency)
Fitch Ratings-London-November 04:
Fitch Ratings has affirmed Fidelity Bank PLC's Long-Term Issuer Default Rating
(IDR) at 'B-'. The Outlook is Stable. A full list of rating actions is at the
end of this rating action commentary.
Key Rating Drivers
IDRs, VIABILITY RATING AND NATIONAL RATINGS
Fidelity's IDRs are driven by its standalone creditworthiness, as expressed by
its 'b-' Viability Rating (VR). Fidelity's VR is conditioned by Nigeria's
operating environment, with weak macroeconomic conditions, policy uncertainty
and regulatory intervention influencing the bank's standalone creditworthiness.
Fidelity's VR reflects its moderate franchise in Nigeria, highlighted by market
shares of loans and deposits of around 4%. Fitch expects the market share to
increase in line with management's growth strategy. Fidelity has a high cost of
funding that limits pricing power compared with larger peers. Fidelity operates
exclusively in Nigeria and has no subsidiaries.
Loan quality remains weak. Fidelity's impaired (Stage 3 under IFRS 9) loans
ratio (5.4% at end-1H19) is low relative to the sector average, but a large
stock of Stage 2 loans (20% of gross loans at end-1H19) that are concentrated by
single-borrower and derive from troubled sectors such as power and oil and gas,
present a risk to Fidelity's financial profile. Specific loan loss coverage of
impaired loans (49% at end-1H19) is low, explained by management's view of
collateral valuation, but broadly in line with peers. Single borrower
concentration is high, with Fidelity's 20 largest loans representing 265% of
Fitch Core Capital (FCC) at end-1H19.
Fidelity's profitability metrics are adequate, with operating returns over
risk-weighted assets averaging 1.6% over the past four years. Profitability
metrics tend to exceed those of similar sized peers, given that Fidelity has not
experienced the particularly high loan impairment charges that other banks have
incurred. Profitability continues to be constrained by a relatively weak net
interest margin, which is explained by a high cost of funding and a low interest
spread on Fidelity's increasing on-lending activities, in addition to a high
cost-income ratio.
Solvency is adequate. Fidelity's FCC ratio (15.6% at end-1H19) compares
favourably with similar sized peers, but should be considered in the context of
high single-borrower concentration and a large stock of Stage 2 loans. Impaired
loans net of specific (Stage 3) loan loss allowances accounted for 15% of FCC at
end-1H19, which we do not consider material. Leverage also compares favourably,
but has increased notably since end-2017 due to IFRS 9 and strong deposit
growth, which has inflated the size of Fidelity's balance sheet. Fidelity is
supporting its growth strategy through a reduced dividend pay-out ratio, which
we view positively.
Fidelity's loans/customer deposits ratio (96% at end-1H19) is higher than peers,
but explained by a greater volume of non-deposit funding (31% of non-equity
funding at end-1H19), in particular a USD400 million eurobond maturing in 2022
and funds for on-lending, which are low-cost and carry a tenor of up to 20
years. A higher proportion of longer-term funding serves to reduce asset and
liability maturity mismatches, which are comfortably covered by holdings of
liquid assets. This is balanced against high single-depositor concentration (in
particular in US dollars) and a reliance on less stable deposit funding.
Fidelity's National Ratings reflect its creditworthiness relative to other
Nigerian issuers.
SUPPORT RATING AND SUPPORT RATING FLOOR
Fitch believes that sovereign support to Nigerian banks cannot be relied upon
given Nigeria's weak ability to provide support, particularly in foreign
currency. Therefore, the Support Rating (SR) and Support Rating Floor (SRF) are
'5' and 'No Floor', respectively. This reflects our view that senior creditors
cannot rely on receiving full and timely extraordinary support from the Nigerian
sovereign if any of the banks become non-viable.
SENIOR DEBT
Fidelity's senior unsecured debt is rated in line with the bank's Long-Term IDR,
given that the likelihood of default on these obligations reflects the
likelihood of default of the bank. Fitch assigns a Recovery Rating (RR) of 'RR4'
to this issue, reflecting average recovery prospects.
RATING SENSITIVITIES
IDRS, VIABILITY RATING, NATIONAL RATINGS
Fidelity's Long-Term IDR, VR and National Ratings are primarily sensitive to
deterioration in asset quality, including the migration of Stage 2 loans into
the Stage 3 category, which would lead to a knock-on effect on profitability and
solvency. Similarly, positive rating action would likely result from an overall
improvement in asset quality metrics, resulting from a material reduction in
Stage 2 and Stage 3 loans, and stronger profitability and solvency metrics.
Fidelity's National Ratings are sensitive to a change in its creditworthiness
relative to other Nigerian issuers.
SR AND SRF
The SR and SRF are sensitive to a change in assumptions around the propensity or
ability of the sovereign to provide timely support to the bank. Given Nigeria's
sovereign ratings, this is not our base case.
SENIOR DEBT
Fidelity's senior unsecured debt rating is sensitive to a change in the bank's
Long-Term IDR.
ESG Considerations
ESG CONSIDERATIONS
The highest level of environmental, social and governance (ESG) credit relevance
for Fidelity is a score of 3. ESG issues are credit-neutral or have only a
minimal impact on the entity, either due to their nature or to the way in which
they are being managed by the entity.
Fidelity Bank PLC; Long Term Issuer Default Rating; Affirmed; B-; RO:Sta
; Short Term Issuer Default Rating; Affirmed; B
; National Long Term Rating; Affirmed; BBB(nga)
; National Short Term Rating; Affirmed; F3(nga)
; Viability Rating; Affirmed; b-
; Support Rating; Affirmed; 5
; Support Rating Floor; Affirmed; NF
----senior unsecured; Long Term Rating; Affirmed; B-
Contacts:
Primary Rating Analyst
Vincent Martin,
Director
+44 20 3530 1828
Fitch Ratings Ltd
30 North Colonnade, Canary Wharf
London E14 5GN
Secondary Rating Analyst
Tim Slater,
Senior Analyst
+44 20 3530 1791
Committee Chairperson
Christian Scarafia,
Senior Director
+44 20 3530 1012
Media Relations: Louisa Williams, London, Tel: +44 20 3530 2452, Email:
louisa.williams@thefitchgroup.com.
Additional information is available on www.fitchratings.com
Applicable Criteria
Bank Rating Criteria (pub. 12 Oct 2018)
https://www.fitchratings.com/site/re/10044408
National Scale Ratings Criteria (pub. 18 Jul 2018)
https://www.fitchratings.com/site/re/10038626
Short-Term Ratings Criteria (pub. 02 May 2019)
https://www.fitchratings.com/site/re/10073011
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/site/dodd-frank-disclosure/10100326
Solicitation Status
https://www.fitchratings.com/site/pr/10100326#solicitation
Endorsement Policy
https://www.fitchratings.com/regulatory
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