Just recently, global credit rating agency, Fitch Ratings affirmed Fidelity Bank Plc’s Long-Term Issuer Default Rating (IDR) at ‘B’ and upgraded its National Long-Term Rating to ‘A+(nga)’ from ‘A(nga)’.
Fitch Ratings said the upgrade reflects Fidelity Bank’s strengthening capital buffers as a result of last year’s rights issue and public offer, alongside stronger internal capital generation.
“This is underpinned by a sharp improvement in profitability metrics since 2022, as the bank benefits from higher rates due to its heavy reliance on low-cost current and savings accounts,” the rating agency said.
“This upgrade by Fitch Ratings affirms the resilience of our business model, the strength of our risk management practices, and our unwavering focus on delivering sustainable value to stakeholders.
“Despite a challenging macroeconomic environment, we have continued to maintain strong asset quality, solid profitability, and ample liquidity. This recognition reinforces our position as one of Nigeria’s most resilient and customer-focused financial institutions,” said Nneka Onyeali-Ikpe, Managing Director/CEO, Fidelity Bank Plc.
The key drivers of the rating…
Fitch said Fidelity Bank’s Issuer Default Ratings (IDRs) are driven by its standalone creditworthiness, as expressed by its Viability Rating (VR) of ‘b’.
“The VR reflects the concentration of operations in Nigeria, high credit concentrations, large sovereign exposure and high Stage 2 loans. It also reflects an expanding franchise, sound profitability metrics, strengthening capital buffers and good foreign currency (FC) liquidity coverage,” Fitch noted.
Read also: Fitch upgrades Fidelity Bank’s rating to ‘A+, affirms long-term IDR at ‘B’
“Fidelity’s National Ratings are also driven by its standalone creditworthiness. They balance an expanding franchise and good capital buffers against weaker profitability through the cycles compared with higher-rated peers,”.
It noted that Nigeria’s Long-Term IDRs were recently upgraded to ‘B’, “as the exchange rate has stabilised, profitability and foreign currency liquidity within the banking sector have improved, and capital raisings are driving a recovery in banks’ capitalisation. However, inflation remains high, regulatory intervention is burdensome and expiring forbearance on oil and gas loans will lead to an increase in impaired loans (Stage 3 loans under IFRS 9) ratios and prudential provisions”.
“Fidelity is Nigeria’s sixth-largest bank, representing 5 percent of domestic banking system assets at end-2024. Strong balance-sheet expansion in recent years has increased its market shares, which we expect to continue, although it remains below that of the five largest banking groups. The bank has one of the highest shares of low-cost deposits in the sector – at 93 percent at end-2024, up from 75 percent at end-2021 – underpinning Fidelity’s expanding franchise.
“Single-borrower credit concentration remains high and above the average of domestic-rated peers. However, we expect concentration to moderate relative to capital due to planned capital raising. Oil and gas exposure is large, at 43 percent of net loans at end-2024. Sovereign exposure through securities and Central Bank of Nigeria (CBN) cash reserves is very high relative to Fitch Core Capital (FCC) at over 400 percent at end-1Q25.
Fidelity’s impaired loans (Stage 3 loans under IFRS 9) ratio fell to 3.3percent at end first quarter (Q1) of 2025 from 3.6 percent in 2023 as strong loan growth outpaced the increase in Stage 3 loans. Stage 2 loans (end-Q1’25: 21 percent of gross loans), which are concentrated in the oil and gas and power sectors and largely US dollar-denominated, remain high and represent a risk to asset quality.
The operating profit strengthened to 13.9 percent of risk-weighted assets (RWA) in 2024 (2022: 6.6 percent) due to a substantial widening in net interest margin (NIM) by almost 400bp. The NIM was supported by the bank’s heavy reliance on low-cost deposits, large derivative gains from currency devaluation and smaller credit losses. “We expect our core profitability metric to remain above 12 percent in 2025 on high interest rates and slower growth in RWAs,”.
Fitch further noted that Fidelity’s FCC ratio improved to 29.9 percent at end-2024 from 23.1 percent at end-2023, due to capital raisings, totalling NGN175 billion or 6.2 percent of RWAs, and stronger internal capital generation. Fitch expects the ratio to strengthen above 30 percent by end-2025, supported by a NGN200 billion capital raising and strong internal capital generation.
“We expect Fidelity to be compliant with the NGN500 billion minimum regulatory requirement for banks with an international licence by end-2025. Its capital adequacy ratio of 23.5 percent at end-2024 is considerably above the 15 percent regulatory minimum.
“Fidelity’s customer deposit base comprises a high percentage of low-cost current and savings accounts, supporting funding stability. Single-depositor concentration is moderate. FC liquidity coverage is healthy, with placements with foreign banks representing 11.5percent of total assets at end-Q1’25”.
Fitch ratings are used by investors to make decisions about their investments. More broadly, they are seen as an indication of the financial health of the issuer.
