Lagos Nigeria, 7 October 2019 – Global Credit Ratings has affirmed the national scale credit ratings assigned to First City Monument Bank Limited of BBB+(NG) and A2(NG) in the long term and short term respectively; with the outlook accorded as Stable. The ratings are valid until August 2020.
Global Credit Ratings (“GCR”) has accorded the above credit ratings to First City Monument Bank Limited (“FCMB” or “the bank”) based on the following key criteria:
FCMB ranks among the mid-sized commercial banks in Nigeria, in terms of balance sheet size and geographical spread across the country. The bank’s market share is estimated at 3.6% by total industry assets at FY18.
FCMB’s shareholders’ funds declined 7.2% to N158.7bn at FY18, underpinned by the impact of IFRS 9 implementation. Consequently, the bank’s risk weighted capital adequacy ratio declined to 15.8% from 16.9% in FY17, albeit remained above the regulatory minimum of 15% prescribed for its licence category. Over the medium term, the bank intends to raise additional capital to strengthen capitalisation and enhance operations.
FCMB’s asset quality indicators weakened further in FY18, with the gross non-performing loan (“NPL”) ratio ending at 5.9% (FY17: 4.9%), albeit remained lower than the peer group average of 8.5%. NPLs increased by 18.4% to N39.3bn in FY18, despite write-offs totaling about N13.7bn and the impact of the full implementation of IFRS 9, which saw some newly classified loans. However, adequate provisioning was made for the impaired loans at FY18, with a general coverage of 120.9% (FY17: 76.2%).
The bank’s liquidity metrics reflects an improvement at FY18, having the ratio of liquidity and trading assets to short term funding improve to 19.3% and 21.2% at FY18 and 1H FY19 respectively (FY17: 15.4%). Furthermore, FCMB’s regulatory liquidity ratio was well above the minimum requirement all through the year, ranged between 40.3% and 50.5% and ended the year at 49%.
Profitability during FY18 was supported by non-interest income (grew 12.5%) and a re-measurement of loss allowances which saw a decline in net impairment charge for the year. Notwithstanding the rise in operating expenses during the year (underpinned by IT related cost), the bank was able to achieve an improvement of 62.7% in pre-tax profit. Accordingly, return on average equity and assets improved to 8.7% and 1.1% in FY18 from 5.4% and 0.8% in prior year respectively. While pre-tax profit for 1H FY19 reflects an improvement relative to corresponding FY18 period, it lags the full year budget and reflects a year-on-year decline on an annualised basis.
An upgrade of the rating could emanate from a satisfactory improvement in the bank’s profitability, asset quality, capital and liquidity metrics, as well as an enhanced competitive position. Conversely, the rating may be sensitive to further pressure on asset quality, profitability and capitalisation metrics.
NATIONAL SCALE RATINGS HISTORY
Initial rating (February 2000)
Long term rating: A+(NG)
Short term rating: A1(NG)
Rating outlook: Stable
Last Rating (September 2018)
Long term rating: BBB+(NG)
Short term rating: A2(NG)
Rating outlook: Stable
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Criteria for Rating Banks and Other Financial Institutions, updated March 2017
Nigerian Financial Institutions Overview (2017)
FCMB rating reports (2000-18)
Glossary of Terms/Ratios (February 2016)
RATING LIMITATIONS AND DISCLAIMERS
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 2018 audited annual financial statements (plus four years of comparative numbers), full year detailed budgeted financial statements up to 31 December 2019 and unaudited financial statements to 30 June 2019. In addition, information specific to the rated entity and/or industry was also received.