Lagos Nigeria, 26 September 2018 – Global Credit Ratings has downgraded the national scale credit rating assigned to First City Monument Bank Limited to BBB+(NG) and affirmed the national scale short term rating of A2(NG); with the outlook accorded as Stable. The ratings are valid until August 2019.
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:
The accorded ratings reflect sustained pressure on FCMB’s key performance metrics (capitalisation, liquidity and profitability) as well as market share in the past one and half years.
The bank on a standalone basis (FCMB Nigeria) ended FY17 with a risk weighted capital adequacy ratio registered slightly below the statutory minimum requirement. While this has normalised post-year end (rising to 16.2% at 1H FY18), this was solely due to a significant reduction in the loan and advances portfolio. FCMB’s shareholders’ funds declined to N160.9bn at 1H FY18 (FY17: N172.5bn) as a result of implementation of the International Financial Reporting Standards 9 impairment model which became effective on 1 January 2018.
Despite a write-off of N17.5bn during the year, gross non-performing loans ratio rose slightly to 4.9% at FY17 (FY16: 3.7%), albeit remains within the industry average for the period and Central Bank of Nigeria’s tolerable limit of 5%. Specific provision coverage of the impaired loans improved to 46.1% at FY17 (FY16: 25.5%).
Key liquidity metrics remained under pressure in FY17, with the ratio of net advances to deposits and other short-term funding ending high at 88.3% at the balance sheet date. While the regulatory liquidity ratio ranged between 30.2% and 37.7% throughout the year, the bank’s liquid and trading assets to total short-term funding ratio of 15.4% stood below peers’ average at FY17.
Profitability metrics weakened in FY17, with net profit before tax (“NPBT”) declining by 31.0% to N9.6bn, although performance in FY16 was partly supported by a significant foreign exchange revaluation gains of N26.5bn. Consequently, return on average equity and assets (“ROaE” and “ROaA”) moderated to 5.9% and 0.9% at FY17 (FY16: 10.4% and 1.4%) respectively. In 1H FY18 FCMB’s NPBT improved relative to the comparable FY17 period, but total comprehensive income remained depressed (this actually declined by 22% to N1.9bn for FCMB Nigeria).
A rating upgrade could emanate from a satisfactory improvement in the bank’s profitability, asset quality, capital and liquidity metrics, as well as an enhanced competitive position. 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 (August 2017)
Long term rating: A-(NG)
Short term rating: A2(NG)
Rating outlook: Negative
Yinka Adeoti/Julius Adekeye
Credit Analyst/Senior Credit Analyst
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Criteria for Rating Banks and Other Financial Institutions, updated March 2017
FCMB rating reports (2000-17)
Glossary of Terms/Ratios (February 2016)
RATING LIMITATIONS AND DISCLAIMERS
SALIENT FEATURES OF ACCORDED RATINGS
GCR affirms that a.) no part of the ratings was influenced by any other business activities of the credit rating agency; b.) the ratings were based solely on the merits of the rated entity, security or financial instrument being rated; c.) such ratings were an independent evaluation of the risks and merits of the rated entity, security or financial instrument; and d.) the validity of the ratings 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 and was contested.
The information received from First City Monument Bank Limited and other reliable third parties to accord the credit rating included the 31 December 2017 audited annual financial statements (plus four years of comparative numbers), full year detailed budgeted financial statements up to 31 December 2018 and unaudited financial statements to 30 June 2018. In addition, information specific to the rated entity and/or industry was also received.