First Bank of Nigeria Ltd. 'B- and B' And 'ngBB and ngB' Ratings Affirmed; Outlook Stable


Tuesday, June 26, 2018 12:50 PM /S & P Global Ratings

·    We expect First Bank of Nigeria Ltd.'s asset quality to remain a rating weakness, over the next 12 months, despite the improved macroeconomic environment and as management continues to address legacy challenges.

·   We believe that FirstBank's regulatory capital will remain comfortably above the minimum regulatory capital requirement, despite the negative impact from implementation of International Financial Reporting Standards (IFRS) 9.

·   As a result, we are affirming our 'B-/B' global scale and 'ngBB+/ngB' national scale ratings on FirstBank.

·    The stable outlook reflects our expectation that the bank will maintain a broadly stable financial profile over the next 12 months.


S&P Global Ratings today affirmed its 'B-/B' long- and short-term issuer credit ratings on Nigeria-based First Bank of Nigeria Ltd. and its non-operating holding company (NOHC), FBN Holdings PLC (FBNH). The outlook on both entities is stable. 

At the same time, we also affirmed our 'ngBB+/ngB' long- and short-term Nigeria national scale ratings on the FirstBank and FBNH. 

The rating actions reflect our view that FirstBank will continue to display weaker asset quality metrics and lower profitability than other rated top-tier banks in Nigeria in 2018, due to still-high credit costs. That said, we believe that the bank's new leadership team will continue to progressively address the legacy asset-quality issues and institute more prudent risk-management measures. 

Although declining, the bank's nonperforming loans (NPLs) remain high at 22.8% at year-end 2017 (following the write-off of 8.3% of total loans). The oil and gas sector remained the largest contributor to NPLs, accounting for 54.6% of total NPLs, followed by the telecommunication sector at 14.2%. Our assessment of FirstBank's credit profile also reflects the bank's high concentration by sector and significant exposure to foreign currency loans (50% of total loans in 2017). The bank's cost of risk remained elevated at 6.4% at year-end 2017. 

In our opinion, cost of risk will remain high and above the sector average, while NPLs will drop below 20% over the next 12-18 months due to some recoveries in the upstream oil and gas sector. Additionally, we expect that loan loss coverage by provisions will improve in the next 12-18 months. 

We anticipate that our risk-adjusted capital ratio for the bank will remain below 5% in the next 12-18 months, compared with 4.9% at year-end 2017. The decline will mainly be attributable to the IFRS 9 implementation, which resulted in a deduction of Nigerian naira (NGN)36.1 billion ($106 million) from retained earnings at March 31, 2018, and high credit losses. Nonetheless, we expect the bank to maintain its capital requirement (CAR) above the regulatory minimum of 15%, due to sufficient earnings retention and measured asset growth. Moreover, the bank's U.S. dollar-denominated subordinated debt would partly protect its capital position in case of naira depreciation. 

Our assessment of FirstBank's credit profile also reflects its good competitive position in Nigeria underpinned by its large retail footprint, low cost of funding, and stable deposit base. On Dec. 31, 2017, FirstBank recorded a stable funding ratio of 145%, supported by a high proportion (74.3%) of deposit funding. Broad liquid assets covered 54.8% of short-term deposits and 3.2x short-term wholesale funding at the same date, which compares well with the level of peers. However, similar to other banks operating in Nigeria, FirstBank's deposit base is somewhat confidence sensitive, due to its contractually short-term nature. 

The ratings on the bank reflect the overall creditworthiness of the FirstBank group, whose group credit profile (GCP) we assess at 'b-'. The bank is the core component of the group. We do not incorporate any external support in the bank's rating, despite our view of its high systemic importance. That is because we view the likelihood of support from the Nigerian government to systemically important banks as uncertain. 

Our ratings on FirstBank's holding company, FBNH, are at the same level as the ratings on FirstBank, reflecting the absence of debt at the holding company level. Under our criteria, we generally notch down from the GCP to reflect the structural subordination of the NOHC and its exposure to potential regulatory intervention. 

Nevertheless, in FBNH's case, we take into account the absence of debt at the holding company level and believe that the risk of the NOHC defaulting is not commensurate with the 'CCC' rating category. 

The stable outlook on FirstBank reflects our view that the bank will maintain its CAR above the minimum requirement of 15% over the next 12 months, despite IFRS 9 implementation. It also reflects our view that asset quality will continue to stabilize, although still at weak levels, while the bank will maintain its above-average funding and adequate liquidity over the next 12 months. 

We could lower the ratings on FirstBank if we see a further deterioration in the bank's asset-quality indicators, or a significant decline in capitalization because of higher credit losses. 

A positive rating action appears remote and would require a substantial improvement in asset-quality indicators while maintaining capitalization and customer franchise at current levels.

Proshare Nigeria Pvt. Ltd. 

Related News

1.       FBNH Plc - Attractively Priced As Concerns Are Overcooked, Strong BUYJun 12, 2018

2.      FBN Holdings Plc FY 2017 and Q1 2018 Conference Call ... - Proshare Apr 30, 2018

3.      FBNH Declares N14.8bn PAT in Q1 2018 Results,(SP:N12 ... - Proshare Apr 27, 2018

4.      FBN Holdings PLC: Weaker Q4 Drives FY'17 Earnings Miss ... - Proshare Apr 26, 2018

5.      FBNH Declares N40.01bn Profit in 2017 Audited Results ... - Proshare Apr 25, 2018

6.      Fitch Affirms FBN Holdings Plc and First Bank of Nigeria at ''B - Proshare Feb 05, 2018

7.       Positive Sentiment Sustained on FirstBank as Share Price Hits N9.02k – Dec 08, 2017

8.     Again, FirstBank Share Price Moves Up by 6.12% Today; Hits N9.01k – Dec 07, 2017

9.      Analysts Confidence in FirstBank Share Price Justified; Records 153.43% YTD Appreciation – Dec 07, 2017

10.  FBN Holdings Plc Q3 2017 Conference Call and Earnings ... - Proshare Oct 27, 2017

11.   Analysing the H1 2017 Performance of FBNHoldings Plc - A Comprehensive Report Oct 20, 2017

12.  FBNHoldings Plc Q1’ 2017 Performance Assessment Report Updated Sep 25, 2017

13.  FBN Holdings Plc: What The Fundamentals Say - Proshare Aug 11, 2017

14.  Analysing the Performance of FBN Holdings Plc - A Comprehensive Report Aug 09, 2017

15.   FBN Holdings Plc: An Attractive Bait?

16.  FBN Holdings Plc: Searching Through the Lines

17.   FBNH Declares N45.84bn Profit in Q3''17 Results,(SP:N6.15k)

18.  Is FBNH a good buy?

19.  5 Things to Take Away from FBNH's Recent Results

20. FBNH Releases Q4'16 and Q1'17 Results; Declares N16.1 ... - Proshare Apr 27, 2017

21.  Otudeko Appointed as Chairman of First Bank HoldCo - Proshare Sept 12, 2012


Related News