Agusto & Co has affirmed the ‘A-’ rating assigned to the N41.2 billion 10-year Subordinated Unsecured Fixed Rate Series 1 Bond of Fidelity Bank plc due in 2031, with a stable outlook even as it said a deterioration in the quality of the bank’s obligors remains a constraint.
The bond issuance represents the first series of the N100 billion bond issuance programme registered in April 2020 with the Securities and Exchange Commission (SEC).
According to Agusto & Co, the rating assigned to the bond reflects “the Issue’s subordinated status as it ranks pari passu with all other existing and future subordinated and unsecured obligations of the Issuer.
The rating which expires on January 7, 2021, also reflects Fidelity Bank’s improved profitability, strong ability to refinance, adequate capitalisation and satisfactory asset quality.
“However, constraining the rating is the obligor concentration in the loan portfolio, a significant deterioration in the quality of obligors according to the Bank’s internal rating model, the slowly recovering economy and the adverse effects of inflation on operating costs.
“In addition, the adverse impact of regulatory costs on the profitability of the banking industry is also a constraint. Meanwhile the rating agency also affirmed the A(f) rating of First Ally Money Market Fund.
“The rating is upheld by the Fund’s sizeable holding of Federal Government of Nigeria (FGN) securities, despite the low yielding interest environment. The rating also reflects First Ally MMF’s low exposure to liquidity risk and interest rate risk.
“However, the rating is constrained by the Fund’s increased credit risk due to the shift in allocation towards the lower end of the acceptable rating buckets and significant concentration in the unitholder base. We have also considered the weak economic environment and the impact of the prevailing low yields on money market securities in Nigeria,” it pointed out.
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