By Modupe Gbadeyanka
One of the leading rating firms in Nigeria, Global Credit Ratings (GCR), has affirmed the national scale long term rating of BBB(NG) to Fidelity Bank Plc’s N30 billion Bond with the outlook accorded as Stable.
In a statement issued last Friday by the company, GCR said given the direct correlation between the financial performance of the Issuer and its ability to punctually meet its obligations under the Issue (considering the unsecured nature of the debt), cognisance was taken of Fidelity’s competitive strengths, and historical and current financial profile and performance.
Fidelity is a mid-sized player within the Nigerian banking sector, with a market share of 4.1% (FY15: 4.4%) based on the total industry assets at 31 December 2016.
Fidelity registered a 3.6% growth in TOI in FY16, driven largely by non-funded revenue (which grew by 8.3% to N25.0bn), as net interest income grew by a marginal 1.7%. Operating expenses rose by 4.7% to N67.2bn during the year (mainly underpinned by a one-off charge arising from the discontinuation of the bank’s gratuity and retirement scheme amounting to N5.0bn in FY16 (FY15: N0.7bn)), pushing up the cost ratio to 77.3% (FY15: 76.4%).
Loan impairment charges also rose by 50.4% to N8.7bn. Consequently, profit before tax dipped by 21.1% to 11.1bn. At 3Q FY17, net interest income outpaced annualised budget and that of the same period in FY16. Non-interest income, on the other hand, lagged budget by an annualised 24.7%.
However, total operating income and pre-tax profit were in line with budget. As such, the bank is expected to perform better than FY16 and possibly, achieve the set budget by year end.
According to the Trustees’ report (dated 10 November 2017), the Bonds have been performing in line with the covenants set by the Issuer, with cumulative coupon payments totalling N9.94bn as at that date.
Given the direct relationship between the performance of the Issuer and its ability to punctually meet its obligations under the Issue, the accorded rating would be sensitive to a positive rating action on the Issuer. Non-compliance with set covenants, and/or a downgrade of the Issuer’s rating, could trigger a negative rating action on the Bonds.
