GCR Affirms First City Monument Bank Limited’s rating of A-(NG); Rating Watch

22 Sep 2016 In Rating Notifications

GCR Affirms First City Monument Bank Limited’s rating of A-(NG); Rating Watch

Lagos Nigeria, 22 September 2016 - Global Credit Ratings has affirmed the national scale credit ratings assigned to First City Monument Bank Limited of A-(NG) and A2(NG) in the long term and short term respectively; with the rating placed on Rating Watch. The ratings are valid until March 2017.

RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit ratings to First City Monument Bank Limited based on the following key criteria:

The accorded ratings reflect the position of First City Monument Bank Limited (“FCMB” or “the bank”) as one of the Tier 2 banks in Nigeria, with an estimated market share of 4.0% (FYE14: 4.1%) by industry assets at FYE15. Cognisance was also taken of the reported decline in the bank’s profitability during F15.

FCMB’s shareholders’ funds totalled N142.4bn at FYE15, representing a 3.3% increase over FYE14, and translating to 2.8x the statutory minimum requirement. Growth was supported by retained earnings during the year. However, given the growth in risk weighted assets, the bank’s capital adequacy ratio (Tier 1 and Tier 2) declined to 16.9% in F15, from 19.3% in F14. A further decline to 15% was reported at 30 June 2016 owing to a revaluation of foreign currency assets at the new exchange rate.

Although FCMB’s gross non-performing loan (“NPL”) ratio rose to 4.2% at FYE15 (from 3.6% at FYE14), it remains within the regulatory guidance limit and in line with peer benchmarks. Furthermore, specific provision coverage improved to 45.3% at FYE15 (FYE14: 28.7%).

Comparison of the bank’s asset and liability maturities at FYE15 shows negative liquidity gaps within the ‘up to one year’ maturity buckets, with the negative liquidity gap of N133.2bn in the ‘up to six months’ maturity bucket equating to 69.5% of total shareholders’ funds. Notwithstanding the above, the bank’s liquidity ratio remained above the statutory minimum during the year, closing at 35.8% (against the regulatory stipulation of 30%).

A reduction in FCMB’s net interest margin saw its net interest income decline to N62.8bn in F15, representing a 12.1% decline YoY. Non-funded revenue also declined by 10.3%, constraining performance at the total operating income level to N84.9bn (88.4% of the F14 result). While operating expenses have remained relatively flat, escalation in the impairment charge saw the bank’s pre-tax profit fall to N6.5bn, representing a 71.3% decline relative to F14. Overall, the bank’s ROaE and ROaA diminished to 4.0% and 0.5% in F15 (F14: 15.8% and 2.0 %) respectively.

An improvement in the quality of assets, higher profitability, and enhanced capitalisation and market position would be favourably considered. The Rating Watch reflects potential negative action that may follow further declines in profitability, asset quality, liquidity pressure, and deterioration in operating conditions.

NATIONAL SCALE RATINGS HISTORY

Initial rating (February 2000)
Long term rating: A+(NG)
Short term rating: A1(NG)
Rating outlook: Stable

Last Rating (May 2016)
Long term rating: A-(NG)
Short term rating: A2(NG)
Rating outlook: Rating Watch

ANALYTICAL CONTACT

Primary Analyst
Adeyinka Olowofela
Credit Analyst
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Committee Chairperson
Dave King
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APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Global Criteria for Rating Banks and Other Financial Institutions, updated March 2016
Nigerian Banking Sector Bulletin (2016)
FCMB rating reports (2000-15)
Glossary of Terms/Ratios (February 2016)

RATING LIMITATIONS AND DISCLAIMERS

ALL GCR’S CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.COM.NG/UNDERSTANDING-RATINGS. IN ADDITION, GCR’S RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLI WEB SITE AT:  HTTP://GLOBALRATINGS.COM.NG/RATINGS-INFO/RATING-SCALES-DEFINITIONS. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE ON THIS SITE AT ALL TIMES. GCR’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE AT www.globalratings.com.ng.

SALIENT FEATURES OF ACCORDED RATINGS

GCR affirms that a.) no part of the rating was influenced by any other business activities of the credit rating agency; b.) the rating was based solely on the merits of the rated entity, security or financial instrument being rated; c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument; and d.) the validity of the rating is for a maximum of 12 months, or earlier as indicated by the applicable credit rating document.

The ratings were solicited by, or on behalf of, First City Monument Bank Limited, and therefore, GCR has been compensated for the provision of the ratings.

First City Monument Bank Limited participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.

The credit ratings have been disclosed to First City Monument Bank Limited with no contestation of the rating.

The information received from First City Monument Bank Limited and other reliable third parties to accord the credit rating included the 31 December 2015 audited annual financial statements (plus three years of comparative numbers), full year detailed budgeted financial statements up to 31 December 2016 and unaudited financial statements to 30 June 2016. In addition, information specific to the rated entity and/or industry was also received.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.COM.NG/UNDERSTANDING-RATINGS. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT HTTP://GLOBALRATINGS.COM.NG/RATINGS-INFO/RATING-SCALES-DEFINITIONS. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE UNDERSTANDING RATINGS SECTION OF THIS SITE.

ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.COM.NG/UNDERSTANDING-RATINGS. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT HTTP://GLOBALRATINGS.COM.NG/RATINGS-INFO/RATING-SCALES-DEFINITIONS. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE UNDERSTANDING RATINGS SECTION OF THIS SITE.

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