(The following statement was released by the rating agency)
Fitch Ratings-London-October 30:
Fitch Ratings has revised the Outlook on the Long-Term Issuer Default Ratings
(IDR) of FBN Holdings Plc (FBNH) and its primary operating company, First Bank
of Nigeria Limited (FBN), to Stable from Positive and affirmed the Long-Term
IDRs at 'B-'. A full list of rating actions is below.
The revision of the Outlooks reflects continuing asset quality pressure on FBNH
and FBN's credit profiles and our expectation that this will take longer than
previously anticipated to resolve.
Key Rating Drivers
IDRs, VIABILITY RATINGS AND NATIONAL RATINGS
FBNH's and FBN's IDRs are driven by their standalone credit profiles, as defined
by their Viability Ratings (VR). The VRs are influenced by the domestic
operating environment, reflecting weak GDP growth, policy uncertainty and
increasing regulatory risks.
The VRs consider FBN's company profile and its solid banking franchise, as
reflected by leading market shares and the largest retail deposit base, which
supports the stability of the bank's funding profile and pre-impairment
profitability.
Asset quality remains a relative weakness compared with peers. Through
significant write-offs, restructuring and recoveries, FBNH has made noticeable
progress in reducing its impaired loan (IFRS 9 Stage 3 loans)/gross loan ratio,
which was 12.6% at end-3Q19 (end-2018: 25.9%) - albeit still high compared with
peers. However, our assessment of this factor also considers modest reserve
coverage of impaired loans and a sizeable book of stage 2 loans, which we
estimate bring problem loans (stage 2 and stage 3 combined) at around 40% of
total loans, a notably higher level than peers. In our view, the performance of
Stage-2 loans within the next 18 months is uncertain and will largely be driven
by the recovery prospects in the oil sector.
While we recognise management's success in reducing FBNH's impaired loan ratio
(FBNH guides an impaired loan ratio below 10% by end-2019), its asset quality
metrics remain notably weaker than peers and also affect other rating factors.
FBN's bank-solo (unconsolidated) total Capital Adequacy Ratio (CAR) was only
marginally above the 15% minimum regulatory requirement at end-3Q19, but is
expected to strengthen by end-2019, when earnings are audited. Fitch also notes
that when including profit for the period, the bank reported a CAR of 16.4% at
end-3Q19.
Pre-impairment earnings are resilient, thanks to the group's strong domestic
franchise. FBN is the oldest and third-largest bank in Nigeria, with a market
share of 14% of domestic credit at end-2018. However, profitability metrics are
inferior to other large Nigerian banks, predominantly as a result of high loan
impairment charges in recent years.
Franchise strength is further illustrated by the group's solid funding base of
low cost retail deposits, driving one of the lowest funding costs in the sector.
Strong liquidity is also supported by a stable and robust deposits base.
Liquidity is provided by a large book of domestic government securities.
FBNH's and FBN's National Ratings reflect their creditworthiness relative to the
country's best credit and relative to peers operating in Nigeria.
SUPPORT RATING AND SUPPORT RATING FLOOR
Fitch believes that sovereign support to Nigerian banks cannot be relied on
given Nigeria's (B+/Stable) weak ability to provide support, particularly in
foreign currency. The Support Rating Floor of all Nigerian banks is 'No Floor'
and all Support Ratings 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.
RATING SENSITIVITIES
IDRS, SUPPORT RATINGS, NATIONAL RATINGS AND SENIOR DEBT
FBNH's and FBN's IDRs are sensitive to any change in their VRs. The Long-Term
IDRs, VRs and National Ratings are sensitive to the overall improvement in asset
quality, which would lead to improved profitability and capitalisation.
Conversely, unexpected credit events, which would have material consequences on
capital's risk-absorption capacity, would have negative rating implications.
FBNH's and FBN's National Ratings are sensitive to a change in their
creditworthiness relative to other Nigerian issuers.
ESG Considerations
The highest level of environmental, social and governance (ESG) credit relevance
for FBNH and FBN is a score of 3. ESG issues are credit-neutral or have only a
minimal impact on the entity, either due to their nature or to the way in which
they are being managed by the entity.
First Bank of Nigeria Ltd; Long Term Issuer Default Rating; Affirmed; B-; RO:Sta
; Short Term Issuer Default Rating; Affirmed; B
; National Long Term Rating; Affirmed; BBB(nga)
; National Short Term Rating; Affirmed; F2(nga)
; Viability Rating; Affirmed; b-
; Support Rating; Affirmed; 5
; Support Rating Floor; Affirmed; NF
FBN Holdings Plc; Long Term Issuer Default Rating; Affirmed; B-; RO:Sta
; Short Term Issuer Default Rating; Affirmed; B
; National Long Term Rating; Affirmed; BBB(nga)
; National Short Term Rating; Affirmed; F2(nga)
; Viability Rating; Affirmed; b-
; 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
Tim Slater,
Senior Analyst
+44 20 3530 1791
Committee Chairperson
Mark Young,
Managing Director
+44 20 3530 1318
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. 12 Oct 2018)
https://www.fitchratings.com/site/re/10044408
National Scale Ratings Criteria (pub. 18 Jul 2018)
https://www.fitchratings.com/site/re/10038626
Short-Term Ratings Criteria (pub. 02 May 2019)
https://www.fitchratings.com/site/re/10073011
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/site/dodd-frank-disclosure/10099703
Solicitation Status
https://www.fitchratings.com/site/pr/10099703#solicitation
Endorsement Policy
https://www.fitchratings.com/regulatory
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