Announcements Financial Institutions Rating Alerts

GCR Affirms First Bank of Nigeria Limited’s Rating of A-(NG); Outlook Positive

Lagos Nigeria, 18 December 2020 — Global Credit Ratings has affirmed the national scale ratings assigned to First Bank of Nigeria Limited of A-(NG) and A2(NG)^ in the long term and short term respectively; with the outlook accorded as Positive. The ratings are valid until September 2021.

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 accorded ratings take into consideration FirstBank’s well-established franchise, significant domestic market share, and status as a systemically important bank in Nigeria. The ratings also reflect the notable improvement in asset quality and profitability metrics, adequate liquidity, as well as its stable funding structure. In addition, cognisance is taken of the elevated risk in the macroeconomic environment, aggravated by the challenges and uncertainties arising from the COVID-19 pandemic.

Further loan book clean-up exercise (involving the write-off of fully provisioned impaired exposures totalling N366.4bn) undertaken by FirstBank saw the gross non-performing loans (“NPL”) decline by 62.4% to N195.4bn at FY19, translating to a significantly improved gross NPL ratio of 10% (FY18: 25%). Positively, the ratio improved further to 8.7% at 3Q FY20, albeit still remained above the Central Bank of Nigeria’s (“CBN”) tolerable limit of 5%. Despite the increasingly tough macroeconomic condition, management envisaged NPL ratio to be sustained at single-digit, through leveraging CBN ’s forbearance (with 15% of loan portfolio restructured as at 3Q FY20), as well as its ongoing remedial actions and intensified recovery efforts. In GCR’s view, the bank’s provisioning level is considered low, as the loan loss provision coverage of impaired loans moderated to 41.9% at FY19 (FY18: 74.7%).

FirstBank is adequately capitalised relative to its current risk level. Shareholders’ funds grew by 24% to N591bn at FY19, fuelled mainly by internal capital generation. However, this translated to a lower capital adequacy ratio (“CAR”) of 15.5% at FY19 (FY18: 17.3%) due to outpacing growth in risk weighted assets. Positively, additional tier 1 capital injection of N25bn by FBN Holdings Plc in June 2020 strengthened CAR to 16.5% at 1H FY20 and stood at 15.7% (excluding profit for the period) at 3Q FY20, following growth in risk assets.

The bank’s funding structure is robust, pillared by its strong retail franchise and well diversified deposit book. This is attested to by the well diversified deposit base, with the single largest depositor accounting for only 2.7% of total deposits at FY19. Furthermore, FirstBank’s liquidity position appears strong, closing FY19 with a statutory liquidity ratio of 38.2% (FirstBank Nigeria only), against the regulatory minimum of 30%.

Key profitability indicators improved in FY19, with pre-tax profit increasing significantly by 83.1% to N70.8bn, underpinned by a combination of strong revenue growth and moderation in impairment charge. While net interest income increased marginally by 0.9% due to the relatively low-yield environment, firmer growth in non-interest income accelerated growth at the total operating income level by 8.4%. Also, operating expenses rose by 17.2%, translating to a higher cost to income ratio of 69.3% (FY18: 64.1%), albeit moderated to 66.1% in 3Q FY20. Overall, return on average equity and asset improved to 12.1% and 1.2% in FY19 (FY18: 7.2% and 0.8%) respectively. For the nine-month ended 30 September 2020, the bank registered a pre-tax profit of N54.8bn, representing a 9.3% growth over the corresponding period in 2019.

A positive rating action is dependent on further improvement in asset quality and profitability metrics, as well as enhanced competitive positioning. However, significant deterioration in asset quality, profitability and capitalisation metrics, as well as a material pressure on the bank’s liquidity position could trigger a negative rating action.

^The change in the assigned short-term rating from A1-(NG) to A2(NG) was mainly attributed to the discontinuation of the former in GCR’s updated rating scale

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 (December 2019)

Long-term: A-(NG)

Short-term: A1-(NG)

Rating outlook: Stable

ANALYTICAL CONTACTS

Primary Analyst

Yinka Adeoti

Credit Analyst

adeoti@gcrratings.com

Committee Chairperson

Dave King

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Global Criteria for Rating Banks and Other Financial Institutions, updated March 2017

FirstBank rating reports (2006-19)

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 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 2019 (plus four years of comparative numbers), latest internal and/or external audit report to management, most recent year-to-date management accounts to 30 September 2020, reserving methodologies and capital management policies. In addition, information specific to the rated entity and/or industry was also received.

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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://GCRRATINGS.COM. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT WWW.GCRRATINGS.COM/RATING_INFORMATION. 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 THIS SITE.

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