Although Fidelity Bank’s single-borrower credit concentration is high, Fitch said it expects concentration to moderate relative to capital due to capital raising.
By Jeffrey Agbo
Fitch Ratings has upgraded the outlook on Fidelity Bank Plc’s Long-Term 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.
Fitch said in a statement released on June 9 that 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.”
According to the statement: “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.”
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The rating agency said that Fidelity, whose CEO is Nneka Onyeali-Ikpe, is Nigeria’s sixth-largest bank, as it accounted for 5% of domestic banking system assets at end-2023, adding that strong balance-sheet growth in recent years has increased the bank’s market shares and that it expects these to increase further but remain below those of the five largest banking groups.
Although Fidelity Bank’s single-borrower credit concentration is high, Fitch said it expects concentration to moderate relative to capital due to capital raising.
The agency added that “Fidelity’s operating profit/risk-weighted assets (RWA) averaged 3.6 per cent over the past four years.
“Operating profit/RWAs improved to 6.6 per cent in 2023 from 3.4 per cent 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 per cent in Q1, 2024 (annualised) due to further NIM widening, strong fees and a continued reduction in the RWA density.”
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.”
