Fitch Ratings has affirmed Fidelity Bank PLC’s (Fidelity) Long-Term Issuer Default Rating (IDR) at ‘B’. The bank’s National Long-Term Rating has been upgraded to ‘A+(nga)’ from ‘A(nga)’. Both the Outlooks on the long-term ratings are Stable.
The upgrade reflects Fidelity’s strengthening of capital buffers due to 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.
Key Rating Drivers
Fidelity’s 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.
Its standalone creditworthiness also drives Fidelity’s National Ratings. They balance an expanding franchise and good capital buffers against weaker profitability through the cycles compared with higher-rated peers.
Improved Operating Environment: Nigeria’s Long-Term IDRs were recently upgraded to ‘B’, as the exchange rate has stabilised, profitability and FC 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 the expiration of forbearance on oil and gas loans will lead to an increase in impaired loan (Stage 3 loans under IFRS 9) ratios and prudential provisions.
Expanding Franchise: Fidelity is Nigeria’s sixth-largest bank, representing 5% of the domestic banking system’s assets as of end-2024.
Substantial balance-sheet expansion in recent years has increased its market share, 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% as of end-2024, up from 75% as of end-2021, which underpins Fidelity’s expanding franchise.
High Credit Concentration: 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 substantial, accounting for 43% of net loans at end-2024.
Sovereign exposure through securities and Central Bank of Nigeria (CBN) cash reserves is very high relative to FCC, at over 400% at end-1Q25.
High Stage 2 Loans: Fidelity’s impaired loans (Stage 3 loans under IFRS 9) ratio decreased to 3.3% at the end of 1Q25 from 3.6% at the end of 2023, as strong loan growth outpaced the increase in Stage 3 loans.
Stage 2 loans (end-1Q25: 21% 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.
Sound Profitability Metrics: The operating profit strengthened to 13.9% of risk-weighted assets (RWA) in 2024 (2022: 6.6%) 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, significant derivative gains from currency devaluation and more minor credit losses.
We expect our core profitability metric to remain above 12% in 2025, driven by high interest rates and slower growth in RWAs.
Strengthening Core Capitalisation: Fidelity’s FCC ratio improved to 29.9% at end-2024 from 23.1% at end-2023, due to capital raisings, totalling NGN175 billion or 6.2% of RWAs, and stronger internal capital generation.
Fitch expects the ratio to strengthen above 30% by the end of 2025, supported by an NGN200 billion capital raise 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 the end of 2025. Its capital adequacy ratio of 23.5% at the end of 2024 is considerably above the 15% regulatory minimum.
Good FC Liquidity Coverage: 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 11.5% of total assets at end-1Q25.
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
Fidelity’s Long-Term IDR would be downgraded if its VR is downgraded.
The VR would be downgraded on a sovereign downgrade as Fidelity does not meet Fitch’s criteria to be rated above the sovereign.
Without a sovereign downgrade, the VR could be downgraded due to erosion of capital buffers, either through rapid asset growth or a material increase in problem loans, resulting in high loan impairment charges. The VR could also be downgraded due to a severe tightening of FC liquidity.
A downgrade of the bank’s National Ratings would result from a weakening of its creditworthiness relative to other Nigerian issuers.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
Fidelity’s Long-Term IDR would be upgraded if its VR is upgraded.
An upgrade of the VR would require a sovereign upgrade, accompanied by a significant improvement in the operating environment, which could be underscored by more stable macroeconomic conditions and lower intervention risk, while maintaining strong financial metrics.
An upgrade of the bank’s National Ratings would result from a strengthening of its creditworthiness relative to other Nigerian issuers’.
Other Debt and Issuer Ratings: Key Rating Drivers
Fidelity’s senior unsecured notes are rated in line with its Long-Term IDR because the likelihood of default on the notes reflects that of the bank. The notes’ Recovery Rating of ‘RR4’ reflects average recovery prospects in the event of default.
The government’s ability to provide full and timely support to commercial banks is weak due to its high debt servicing metrics and constrained FC resources, given the banking sector’s large FC liabilities.
This results in a Government Support Rating of ‘no support’, reflecting our view that support for senior creditors will not be forthcoming, should the bank become non-viable.
Other Debt and Issuer Ratings: Rating Sensitivities
Fidelity’s senior unsecured debt rating will move in tandem with its Long-Term IDR.
An upgrade of the Government Support Rating would require an improvement in the government’s ability to provide support, which would most likely be indicated by an increase in international reserves and an improvement in debt-servicing metrics.
VR ADJUSTMENTS
The earnings and profitability score of ‘b+’ is below the ‘bb’ category implied score due to the following adjustment reason: earnings stability (negative).
The capitalisation and leverage score of ‘b’ is below the ‘bb’ category implied score due to the following adjustment reason: risk profile and business model (negative).
References for Substantially Material Source Cited as Key Driver of Rating
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of ‘3’. This means that ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their inherent nature or the way in which the entity manages them.
ESG Relevance Scores are not inputs in the rating process; they are an observation of the materiality and relevance of ESG factors in the rating decision.
