FITCH Ratings has revised the outlook on Fidelity Bank Plc’s LongTerm Issuer Default Rating (IDR) to positive from stable, while affirming the rating at ‘B-’.
The credit rating agency has also affirmed Fidelity Bank’s National Long-Term Rating at ‘A(nga)’ with a stable outlook.
In a statement, Fitch said the outlook revision reflects its, “expectations that the bank’s capitalisation will strengthen in the near term as a result of core capital issuances, including to meet the new paid-in capital requirement of N500 billion for banks with an international licence effective by end-1Q26.”
The statement read: “Fidelity’s IDRs are driven by its standalone creditworthiness, as expressed by its Viability Rating (VR) of ‘b-’. The VR balances the concentration of operations in Nigeria’s challenging operating environment, very high credit concentration and high stage 2 loans against a growing franchise, sound profitability metrics, good capital buffers and reasonable foreign-currency (FC) liquidity coverage.
“Fidelity’s national ratings are driven by its standalone creditworthiness. They balance a growing franchise and good capital buffers against weaker profitability than higher rated peers.”
The rating agency said Fidelity is Nigeria’s sixth-largest bank as it accounted for five percent of domestic banking system assets at end-2023, adding that strong balance-sheet growth in recent years has increased bank’s market shares and that it expects these to increase further but remain below those of the five largest banking groups.
Although it said Fidelity Bank’s single-borrower credit concentration is high, Fitch said it expects concentration to moderate relative to capital due to capital raising.
According to the agency, Fidelity’s operating profit/risk-weighted assets (RWA) averaged 3.6 percent over the past four years.
“Operating profit/RWAs improved to 6.6 percent in 2023 from 3.4 percent in 2022 owing to a wider net interest margin (NIM), large foreign-exchange revaluation gains that accompanied the Naira devaluation and a declining RWA density. The metric increased further to 8.6 percent in 1Q24 (annualised) due to further NIM widening, strong fees and a continued reduction in the RWA density,” Fitch stated.
The agency further said that while Fidelity’s total Capital Adequacy Ratio (end-1Q24: 16.3 percent, excluding unaudited profits) has a modest buffer over the 15 percent minimum requirement, it expects “capitalisation to strengthen materially in the near term owing to a rights issue due to be concluded in 2024 (equivalent to 650bp of RWAs at end-1Q24) and further capital issuances to meet the new paid-in capital requirement of N500 billion for banks with an international licence by end-1Q26.”
On factors that could lead to negative rating action/downgrade, the agency said, “A sovereign downgrade could result in a downgrade of Fidelity’s VR and Long-Term IDR if Fitch believes that the direct and indirect effects of a sovereign default would be likely to have a sufficiently large effect on capitalisation and foreign-currency liquidity to undermine the bank’s viability. However, this is unlikely considering the Positive Outlook on Nigeria’s Long-Term IDRs.”
It, however, said that while key reforms pursued by President Bola Tinubu since he assumed office in May 2023, such as reducing the fuel subsidy and embracing liberalisation of the forex market, are positive for Nigeria’s creditworthiness and FX market liquidity, they “pose near-term macroeconomic challenges for the banking sector.”
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