Announcements Financial Institutions Rating Alerts

GCR Affirms First Bank of Nigeria Limited’s rating of A-(NG); Outlook: Rating Watch.

Lagos Nigeria, 04 December 2018 — Global Credit Ratings has affirmed the national scale ratings assigned to First Bank of Nigeria Limited of A-(NG) and A1-(NG) in the long term and short term respectively. The ratings have been placed on ‘Rating Watch’, which GCR expects to resolve by April 2019.

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 ratings of FirstBank are supported by strong market position, adequate capitalisation, funding and liquidity. Cognizance is also taken of the likelihood of support from the Federal Government of Nigeria given the systemically important status of the bank. The ratings are however restrained by the weak asset quality relative to peers.

Capitalisation is considered adequate for current risk level, with the risk weighted capital adequacy ratio registered at 17.7% at FY17 (FY16: 17.8%), above the regulatory minimum of 15%. Shareholders’ funds grew by 21.4% to N627.6bn at FY17, largely underpinned by internal capital generation.

Key profitability metrics improved in FY17 supported by a significant (337.4%) growth in net profit after tax. Growth in profit came from a significant (37.2%) reduction in impairment charge. Notwithstanding the cost containment measures (which resulted in a moderate rise in operating expenses by 5.2%), an outpaced 6.2% decline in total operating income saw cost to income ratio expand to 51.4% (FY16: 45.8%). Overall, return on average equity and asset strengthened to 9.0% and 1.1% at FY17 (FY16: 2.3% and 0.3%) respectively.

Notwithstanding the gradual improvement recorded, FirstBank’s weak asset quality position (loans and advances portfolio) has remained a key rating concern since the past three years. The non-performing loan (“NPL”) ratio ended at 22.5%, 20.5% and 19.6% at FY17, 1H FY18 and 3Q FY18 respectively. However, management indications of a significant improvement in the NPL ratio in the medium term through its intensified recovery efforts, remedial action on delinquent assets (predominantly legacy exposures) and cautious lending approach provide some level of comfort in this regard. Thus, the accorded “Rating Watch” status implies that the rating will be reviewed within the next six month based on the asset quality position.

Funding and liquidity are adequate, with the regulatory liquidity ratio registered at 52.7% in FY17 (for FirstBank Nigeria only), against the regulatory minimum of 30%. Furthermore, the bank’s liquid and trading assets to total short-term funding ratio of 40.6% compares favourably with peers’ average. Deposit concentration is low, with top twenty depositors accounting for 10.1% of total deposits.

A positive rating action is dependent on a rebound to strong asset quality and profitability as well as further improvement in competitive positioning. However, sustained pressure on asset quality and profitability, coupled with a significant deterioration in the bank’s liquidity and capital metrics could result in negative rating action.

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 (September 2017)
Long-term: A-(NG)
Short-term: A1-(NG)
Rating outlook: Stable

ANALYTICAL CONTACTS

Analysts
Yinka Adeoti/Julius Adekeye
Credit Analyst/Senior Credit Analyst
adeoti@globalratings.net
adekeye@globalratings.net

Committee Chairperson
Dave King
king@globalratings.net

APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Criteria for Rating Banks and Other Financial Institutions, updated March 2017
FirstBank rating reports (2006-17)
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 2017 (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 2018, reserving methodologies and capital management policies. In addition, information specific to the rated entity and/or industry was also received.

image_pdfPDF View


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.

CREDIT RATINGS ISSUED AND RESEARCH PUBLICATIONS PUBLISHED BY GCR, ARE GCR’S OPINIONS, AS AT THE DATE OF ISSUE OR PUBLICATION THEREOF, OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. GCR DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL AND/OR FINANCIAL OBLIGATIONS AS THEY BECOME DUE. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: FRAUD, MARKET LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND GCR’S OPINIONS INCLUDED IN GCR’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND GCR’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND GCR’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL OR HOLD PARTICULAR SECURITIES. NEITHER GCR’S CREDIT RATINGS, NOR ITS PUBLICATIONS, COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. GCR ISSUES ITS CREDIT RATINGS AND PUBLISHES GCR’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING OR SALE.

Copyright © 2021 GCR INFORMATION PUBLISHED BY GCR MAY NOT BE COPIED OR OTHERWISE REPRODUCED OR DISCLOSED, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT GCR’S PRIOR WRITTEN CONSENT. Credit ratings are solicited by, or on behalf of, the issuer of the instrument in respect of which the rating is issued, and GCR is compensated for the provision of these ratings. Information sources used to prepare the ratings are set out in each credit rating report and/or rating notification and include the following: parties involved in the ratings and public information. All information used to prepare the ratings is obtained by GCR from sources reasonably believed by it to be accurate and reliable. Although GCR will at all times use its best efforts and practices to ensure that the information it relies on is accurate at the time, GCR does not provide any warranty in respect of, nor is it otherwise responsible for, the accurateness of such information.GCR adopts all reasonable measures to ensure that the information it uses in assigning a credit rating is of sufficient quality and that such information is obtained from sources that GCR, acting reasonably, considers to be reliable, including, when appropriate, independent third-party sources. However, GCR cannot in every instance independently verify or validate information received in the rating process. Under no circumstances shall GCR have any liability to any person or entity for (a) any loss or damage suffered by such person or entity caused by, resulting from, or relating to, any error made by GCR, whether negligently (including gross negligence) or otherwise, or other circumstance or contingency outside the control of GCR or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits) suffered by such person or entity, as a result of the use of or inability to use any such information. The ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained in each credit rating report and/or rating notification are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. Each user of the information contained in each credit rating report and/or rating notification must make its own study and evaluation of each security it may consider purchasing, holding or selling. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY GCR IN ANY FORM OR MANNER WHATSOEVER.