Fitch Affirms First City Monument Bank at 'B-'/Stable; off Rating Watch Negative

(The following statement was released by the rating agency)
Fitch Ratings-London-06 October 2020:
Fitch Ratings has affirmed First City Monument Bank (FCMB) Ltd's ratings,
including the bank's Long-Term Issuer Default Rating (IDR) at 'B-', and
removed them from Rating Watch Negative (RWN). The Outlook is Stable. A full
list of rating actions is below.

The removal of the RWN on FCMB's Long-Term IDRs, Viability Rating (VR) and
National Ratings reflects Fitch's view of receding near-term risks to the
bank's credit fundamentals from the economic fallout arising from the oil
price slump and coronavirus pandemic.

In our opinion, the impact of the economic downturn on FCMB's credit profile
is tolerable at the current rating level and it will take several quarters
before the full extent of the crisis on corporates and households is seen in
its financial metrics. Since the previous rating action in March, regulatory
forbearance on asset classification and banks' own debt-relief measures have
significantly eased the sector's asset-quality pressures. Debt-relief measures
are, nevertheless, temporary and with the eventual easing of fiscal and
monetary support from the Central Bank of Nigeria (CBN), we see a material
risk that bank asset quality could deteriorate faster, unless economic
recovery gathers pace.

The Stable Outlook on FCMB's Long-Term IDR reflects our view that the bank's
rating has sufficient headroom at this level to absorb moderate shocks from
sustained downside risks to the operating environment, the heightened level of
risk in doing banking business and resulting risks to its financial
performance over the next 12-18 months.
Key Rating Drivers
IDRS and VR

The IDRs of FCMB are driven by its intrinsic creditworthiness, as defined by
its 'b-' VR. The VR considers FCMB's exposure to Nigeria's volatile operating
environment, but also the bank's moderate profitability compared with peers'
and limited capital buffers above minimum regulatory requirements. The credit
quality of FCMB's loan book (40% of assets at end-1H20) has remained
reasonable so far. Our assessment also considers the bank's sizeable
investments, mainly in Nigerian government securities, and cash placements.
The Nigerian sovereign rating is 'B' and Outlook is Stable.

FCMB's franchise is small as evidenced by a 4% market share. This means that
it has limited pricing power compared with the larger banks and focuses on
more niche higher-risk segments of the market such as mid-sized corporates,
retail and SME lending.

Headline asset-quality metrics compare well with peers'. The bank's impaired
loans (Stage 3 IFRS 9) ratio improved to 3.3% at end-1H20 (end-2019: 3.6%,
end-2018: 5.9%), due primarily to restructuring and write-offs. FCMB has a
large stock of stage 2 loans (19% of the loan book) and high borrower
concentration with the 20-largest loans accounting for half of gross loans,
which exposes the bank to event risk. The debt-relief book was 20% of total
loans at end-1H20, slightly above the sector average.

In addition, Fitch believes that FCMB's strong reserve coverage of 167% at
end-1H20 provides strong buffers against asset-quality erosion over the next
12-18 months, due to the economic fallout caused by the coronavirus crisis.
Oil and gas sector exposure measured at a high 31% of the loan book and 143%
of Fitch Core Capital (FCC) at end-1H20, mainly derived from the upstream
sector, which we consider to be more vulnerable to a lower oil price
environment. We believe that asset-quality risks remain to the downside,
particularly when considering operating environment risks and the bank's
highly dollarised balance sheet, which creates foreign-currency (FC) risk due
to currency shortages.

FCMB's profitability metrics typically lag behind those of other small
Nigerian banks, as evidenced by an annualised operating profit/ risk-weighted
assets (RWA) ratio of 1.4% in 1H20, compared with a sector average of around
4%. This is due to higher loan impairment charges (LICs), which consumed 51%
of pre-impairment profits in 1H20. We expect FCMB to remain profitable in
2020, although we expect earning and profitability metrics to be somewhat
under pressure in the next 12-18 months, owing to lower yields on government
securities and higher LICs.

The bank's FCC ratio (15% at end-1H20) is in line with that of similarly sized
peers, but should be considered in the context of high concentration risks,
including exposure to the oil and gas sector, and high balance-sheet
dollarisation, which exposes FCMB's capital to RWA inflation should the naira
further depreciate. At end-1H20, FCMB's capital adequacy ratio of 15.9% at
end-1H20 was only providing limited headroom above the regulatory minimum
requirements of 15%.

FCMB is more reliant on wholesale funding than peers, with customer deposits
forming 69% of total funding at end-1H20. The balance comes from market
funding, including borrowing from development financial institutions,
on-lending facilities and a local-currency bond programme, leading to a higher
cost of funding than most peers. Positively, customer-deposits growth has been
rapid in recent years, which served to bring the bank's loans/customers
deposits down to 74% at end-1H20 (end-2018: 80%).

Local-currency liquidity is ample, with excess liquidity placed in government
securities. FCMB's funding in foreign currency remains largely short-term on a
contractual basis, exposing it to maturity mismatches, with customer deposits
representing the bulk of the bank's short-term commitments. That said,
behavioural data suggests that foreign currency funding is more stable.

SUPPORT RATING AND SUPPORT RATING FLOOR

Sovereign support to banks cannot be relied on given Nigeria's weak ability to
provide support, particularly in foreign currency. The Support Rating Floor
(SRF) of all Nigerian banks is 'No Floor' and all Support Ratings (SR) are
'5'. This reflects our view that senior creditors cannot rely on receiving
full and timely extraordinary support from the Nigerian sovereign if any of
the banks become non-viable.

NATIONAL RATINGS

FCMB's National Ratings reflect the bank's creditworthiness relative to that
of other issuers in Nigeria and are driven by the bank's standalone strength.
FCMB is rated below the larger banking peers due to its smaller franchise and
limited capital buffers. FCMB's National Short-Term Rating is the lower of the
two possible options for a 'BBB(nga)' National Long-Term Rating under Fitch's
criteria, reflecting potential risks to funding and liquidity from market
instability.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating
action/upgrade:

-Upside to the ratings is unlikely at present but could come from a material
improvement in operating conditions and a sovereign upgrade.

Factors that could, individually or collectively, lead to negative rating
action/downgrade:

-Lack of headroom over the minimum regulatory capital requirements or
prolonged delays in the bank's planned capital-raising, including tier 2 debt
issue

-Impaired loan ratio rising substantially above 10% for a sustained period,
resulting in substantial bottom-line losses and erosion of capital buffers,
with FCC ratio ay 10%-12% for a sustained period

-A severe tightening in the bank's foreign currency liquidity
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond
issuers have a best-case rating upgrade scenario (defined as the 99th
percentile of rating transitions, measured in a positive direction) of three
notches over a three-year rating horizon; and a worst-case rating downgrade
scenario (defined as the 99th percentile of rating transitions, measured in a
negative direction) of four notches over three years. The complete span of
best- and worst-case scenario credit ratings for all rating categories ranges
from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on
historical performance. For more information about the methodology used to
determine sector-specific best- and worst-case scenario credit ratings, visit
[https://www.fitchratings.com/site/re/10111579]
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 ESG issues are credit-neutral or have
only a minimal credit impact on the entity, either due to their nature or the
way in which they are being managed by the entity. For more information on
Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.
First City Monument Bank Limited; Long Term Issuer Default Rating; Affirmed;
B-; Rating Outlook Stable
; Short Term Issuer Default Rating; Affirmed; B; Rating Watch Off
; National Long Term Rating; Affirmed; BBB(nga); Rating Watch Off
; National Short Term Rating; Affirmed; F3(nga); Rating Watch Off
; Viability Rating; Affirmed; b-; Rating Watch Off
; Support Rating; Affirmed; 5
; Support Rating Floor; Affirmed; NF

Contacts:
Primary Rating Analyst
Vincent Martin,
Director
+44 20 3530 1828
Fitch Ratings Ltd
30 North Colonnade, Canary Wharf
London E14 5GN

Secondary Rating Analyst
Christopher Ogunleye,
Analyst
+44 20 3530 1192

Committee Chairperson
Olga Ignatieva,
Senior Director
+7 495 956 6906

Media Relations: Louisa Williams, London, Tel: +44 20 3530 2452, Email:
louisa.williams@thefitchgroup.com

Additional information is available on www.fitchratings.com

Applicable Criteria
Bank Rating Criteria (pub. 28 Feb 2020) (including rating assumption
sensitivity) (https://www.fitchratings.com/site/re/10110041)
National Scale Rating Criteria (pub. 08 Jun 2020)
(https://www.fitchratings.com/site/re/10121358)

Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
(https://www.fitchratings.com/site/dodd-frank-disclosure/10138529)
Solicitation Status
(https://www.fitchratings.com/site/pr/10138529#solicitation)
Endorsement Status
(https://www.fitchratings.com/site/pr/10138529#endorsement_status)
Endorsement Policy
(https://www.fitchratings.com/site/pr/10138529#endorsement-policy)

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