GCR Downgrades First Bank Of Nigeria Limited’s Rating To A-(NG) ; Outlook Stable

05 Aug 2016 In Rating Notifications

GCR Downgrades First Bank Of Nigeria Limited’s Rating To A-(NG) ; Outlook Stable

Lagos Nigeria, 05 August 2016 — Global Credit Ratings has downgraded First Bank of Nigeria Limited’s national scale ratings to A-(NG) and A1-(NG) in the long term and short term respectively; with the outlook accorded as Stable. The ratings are valid until August 2017.


RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit ratings to First Bank of Nigeria Limited1 (“FirstBank” or “the Bank”) based on the following key criteria:

The negative rating trajectory of FirstBank reflects its moderating competitive position and financial performance challenges in recent years. However, key rating supports remain the Bank’s established franchise and long track record in the market.

The Bank’s non-performing loan (“NPL”) ratio escalated to 17.8% at FYE15 (a significant departure from less than 3.0% recorded in the last four years). This was largely driven by a marked growth in delinquent assets, particularly in the troubled oil and gas sector, where the Bank is highly exposed (38.1% of loan book at FYE15). Management noted that 12% of the loan book was restructured in F15, with the oil and gas sector accounting for 70% of restructured loans. The provisioning level is considered low, with specific provisions covering 32.8% of NPLs at FYE15 (FYE14: 42.8%).

Albeit FirstBank has shifted focus to loan recovery, and portfolio realignment towards perceived lower risk sectors, with muted loan growth prospects, GCR envisages additional impairments given the current risk level and unfavourable operating conditions, and hence, weaker asset quality by FYE16. The NPL ratio stood above 20% at 1H 2016.

The Bank remains adequately capitalised for its current risk level. FirstBank (Nigeria) had a risk weighted capital adequacy ratio of 17.1% at FYE15, above the prudential threshold of 15%. The position is not expected to change imminently given management’s reduced risk appetite with focus on building internal capital generative capacity.

Although the Bank displayed a largely short-dated funding structure (a common industry feature), with slight contraction in the deposit book following implementation of the treasury single account policy and reduction in expensive funding, liquidity risk is considered to be low (FirstBank (Nigeria’s) regulatory liquidity ratio was 51.9% at FYE15, well above the prudential minimum of 30%).

Foreign currency exposure was evidenced in full-year 2015, given the Bank’s high foreign currency denominated credits within the troubled oil and gas sector. Although FirstBank is taking necessary mitigating measures, GCR expects the socio-political unrest within the oil-producing region in Nigeria together with scarcity of foreign currency to continue to impact the risk level, pending future market stabilisation.

Profitability was considerably eroded following a sharp rise in the impairment charge to N126bn (F14: N26bn), with the Bank posting a net profit after tax of N2.9bn in F15 (F14: N84.9bn). According to management, the Bank will continue to improve on its risk management processes and operational efficiency in order to enhance performance in the coming years.

While the challenging operating environment has heightened uncertainties across all forward looking scenarios, positive rating momentum is dependent on a rebound to strong asset quality and profitability, with markedly improved competitive positioning. Conversely, the ratings will be sensitive to a further rise in impaired assets beyond anticipated level and/or pressure on profitability and capitalisation.

1 First Bank of Nigeria Limited is the commercial banking group of FBN Holdings Plc. All figures are for the commercial banking group except where stated otherwise


NATIONAL SCALE RATINGS HISTORY

Initial rating (September 2006)
Long-term: AA(NG)
Short-term: A1+(NG)
Rating outlook:  Positive

Last rating (August 2015)
Long-term: AA-(NG)
Short-term: A1+(NG)
Rating outlook: Stable

ANALYTICAL CONTACTS

Primary Analysts

Femi Atere /Julius Adekeye
Credit Analyst/Senior 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
FirstBank rating reports (2006-15)
Glossary of Terms/Ratios, February 2016


RATING LIMITATIONS AND DISCLAIMERS

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/RATINGS-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 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 Bank of Nigeria Limited, and therefore, GCR has been compensated for the provision of the ratings.

First Bank of Nigeria 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 above were disclosed to First Bank of Nigeria Limited with no contestation of/changes to the ratings.

The information received from First Bank of Nigeria Limited and other reliable third parties to accord the credit rating included the latest audited annual financial statements as at 31 December 2015 (plus four years of comparative numbers), latest internal and/or external audit report to management, most recent year-to-date management accounts to 30 June 2016, reserving methodologies and capital management policies. 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/RATINGS-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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