Fidelity Bank’s Capital Adequacy Ratio (CAR) should rise to 16.95% for Full Year 2023 on the back of aggressive earnings retention, the bank’s plan to increase its issued share capital to N22.60bn via a public offer and rights issue of up to 3.2 billion shares, according to recent report by Chapel Hill Denham.
The small and midsized lender who recorded a record profit saw CAR ratio deteriorate to 16.10 percent in June 2023 from 19.80 percent as of December 2022, according to data from Chapel Hill Denham.
It must be noted that the risk weighed asset (RWA) grew by 31 percent year to date (YTD), putting pressure on CAR, which laid bare the need for recapitalisation.
“We note that since the liberalisation of the exchange rate, the currency has traded within the range of NGN430.00/dollar-N869/dollar at the official I&W window so far in 2023,” said analysts at investment house.
“However, according to management, NGN900/dollar, Fidelity’s CAR becomes uncomfortably close to minimum CAR of 15 percent,” said the analysts.
The abrupt devaluation of the currency since President Bola Ahmed Tinubu announced market friendly reforms is a blessing in disguise for lenders who made gains on foreign exchange revaluation that lifted their earnings to an all-time high.
For instance, Fidelity Bank’s average return on equity (ROAE) increased to 34.90 percent in June 2023 from 15.40 percent the previous year.
However, the central bank has warned against dolling out the vast amount of the windfall in the form of dividend and share buybacks as it stressed the need to protect capital against macro shocks.
A capital restructuring combined with Fidelity Bank’s plans to increase its issue capital to N22.60 billion via a public offer up to 10 billion ordinary shares and rights issues of up to 3.2 billion shares, could potentially raise 34 percent of the estimated capital, according to analysts at Chapel Hill Denham.
The research house has maintained a Buy rating on the lender’s stock.