November 10, 2021
by Moody’s Investors Services
Moody’s Investors Service (“Moody’s”) has assigned a B2 rating to senior unsecured notes issued by Fidelity Bank plc (Fidelity; B2 negative, b3). The outlook is negative.
Ratings Rationale
The B2 rating assigned to the senior unsecured class of notes is aligned with Fidelity’s B2 issuer rating. The rating incorporates the fact that the senior unsecured notes issued will (1) be direct, general, unconditional, unsubordinated, and unsecured obligations of the bank, and (2) rank pari passu with all other present and future unsubordinated and unsecured obligations of the bank.
Fidelity’s B2 issuer rating incorporates a one-notch uplift from the b3 Baseline Credit Assessment (BCA), reflecting our assumption of high probability of support from the Government of Nigeria (B2 negative), in case of need. The bank’s b3 BCA reflects Fidelity’s satisfactory capital adequacy ratios, improving profitability and stable problem loan levels. These supportive factors are counterbalanced by the bank’s (1) vulnerability to downside asset risks, particularly due to its large proportion of foreign-currency denominated loans, (2) relatively tight funding profile as reflected by its high loan-to-deposit ratio, and (3) comparatively higher leverage as indicated by its modest ratio of shareholders’ equity to total assets relative to its peers.
Fidelity plans to use the net proceeds from this issuance for general corporate purposes including supporting its trade finance business.
Outlook
The negative outlook on the notes is aligned with the negative outlook on Fidelity’s long-term ratings. The negative outlook reflects the negative outlook on the support provider, the Government of Nigeria. Fidelity has a large exposure to sovereign securities and loans at greater than 200% of its tangible common equity (TCE) as of June 2021, which links its credit profile to that of the sovereign. Furthermore, Fidelity’s revenue generation capacity and asset quality will be weakened by Nigeria’s challenging operating environment.
Factors That Could Lead To An Upgrade Or Downgrade Of The Rating
Upwards pressure on Fidelity’s long-term ratings is limited given the negative outlook. A change of the outlook on the sovereign rating to stable from negative could lead to a stabilisation of the outlook on the bank’s ratings.
Downward pressure on Fidelity’s ratings could develop from a combination of: (1) a weakening in the government’s capacity to provide support, as would be indicated by a downgrade of the rating of the Government of Nigeria, (2) a material deterioration in the operating environment in Nigeria, and/or (3) a material deterioration in the bank’s solvency and funding profile.
