Fitch upgrades FBN Holdings to ‘B’ outlook stable

“This includes two longstanding related-party exposures, have largely been addressed and therefore risks to capitalisation have receded, helped by strong internal capital generation since the irregularities were raised.

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Fitch Ratings has affirmed the Long-Term Issuer Default Ratings (IDRs) of FBN Holdings Plc (FBNH) and its subsidiary, First Bank of Nigeria Ltd. (FBN), ‘B’ from ‘B-’ with a stable outlook.
Fitch also upgraded their Viability Ratings (VR) to ‘b’ from ‘b-‘.
The global rating agency said in a report that the upgrade of the Long-Term IDRws that of the VRs, reflects the corporate governance irregularities publicly raised by the Central Bank of Nigeria (CBN) in April 2021.
“This includes two longstanding related-party exposures, have largely been addressed and therefore risks to capitalisation have receded, helped by strong internal capital generation since the irregularities were raised.
“Fitch has withdrawn FBNH’s and FBN’s Support Ratings and Support Rating Floors as they are no longer relevant to the agency’s coverage, following the publication of its
updated Bank Rating Criteria on 12 November 2021, in line with the updated criteria,
we have assigned Government Support Ratings (GSR) of ‘no support’ (ns) to both
issuers,” it said.
The agency said that FBNH and FBN had not been subject to penalties in relation to irregularities raised by the CBN in April 2021 and no further irregularities had been raised.
“FBN is the third-largest bank in Nigeria, representing 11 per cent of domestic banking-system assets at end-2021. A strong franchise supports a stable funding profile and a low cost of funding.
“Revenue diversification is strong, with non-interest income representing 48 per cent of operating income in 2021.
On material credit concentrations, it said that single-borrower credit concentration was material, with the 20-largest loans representing 157 per cent of Fitch Core Capital (FCC) at the end of the first half of 2022.
The rating agency said, “Oil and gas exposure (30 per cent of net loans at end-2021) is higher than the banking-system average and weighted toward higher-risk upstream and services sub-segments.
“Improved Asset Quality: FBN’s impaired loans (Stage 3 loans under IFRS 9) ratio has declined significantly to 5.6 per cent at the end of the first half of 2022 from a peak of 25 per cent at end-2018 as a result of sizeable write-offs, successful restructurings and recoveries and, more recently, the flattering effect of strong loan growth.”
It also said that FBNH delivers healthy profitability, as indicated by an operating return on risk-weighted assets (RWAs) averaging 2.6 per cent over the past four years (four per cent in 2021, underpinned by large recoveries on a previously written-off loan).
Fitch noted that earnings benefit from a low cost of funding and strong non-interest income but were constrained by a high cost-to-income ratio which was 74 per cent in 2021 and significant loan impairment charges (LICs) in recent years.
It also said that improved capitalisation, creditworthiness, more stable funding profile were key positive indices considered in its assessment.
“The rating upgrade of FirstBank and its holding company could, however, be affected by a sovereign downgrade as the bank “does not meet Fitch’s criteria to be rated above the sovereign”.
“An increase in the impaired loan ratio to significantly above 10 per cent that results in markedly weaker performance and very thin buffers over regulatory capital requirements or a sharp decline in the FCC ratio without clear prospects to restore capital would pressure the VRs,” Fitch said.