Fitch affirms FBN Holding ratings after board replacement

A London based international credit rating agency, Fitch Ratings has affirmed the LongTerm Issuer Default Ratings (IDRs) of FBN Holdings Plc (FBNH) and its primary operating subsidiary, First Bank of Nigeria Ltd (FBN), at ‘B-’ with a negative outlook. 

This came after the Central Bank of Nigeria sacked the boards of FBNH and First Bank and reinstated the sacked Chief Executive Officer of the bank, Adesola Adeduntan. 

The CBN said it took the action because FBN had made significant executive management changes, including replacing the CEO, without prior notice or approval of the regulator. 

The CBN also highlighted corporate governance failings pertaining to long-standing and problematic related-party exposures, and failure to comply with regulatory directives. 

In the rating, Fitch, however, said the CBN’s action will not have a material effect on the group’s asset quality, profitability and capitalisation. 

“We have assessed the near-term financial impact of these actions on FBNH and FBN and believe this is tolerable at the rating level, even though the final outcome is uncertain. In our view, any remedial actions imposed by the CBN, including a potential reclassification of related-party exposures as impaired, will not have a material effect on the group’s asset quality, profitability and capitalisation”, Fitch said in its Rating Action Commentary seen by the Nigerian Tribune. 

It, however, clarified that the affirmed rating “does not consider any possible additional actions by the CBN, especially if FBN fails to implement the regulator’s corrective measures or if there were any further uncovering of corporate governance irregularities. 

“The outlook remains negative, reflecting FBNH’s pre-existing asset quality and capitalisation weaknesses as well as the group’s corporate governance weaknesses highlighted by the CBN. These could put pressure on the ratings.” 

It emphasised that one of the key rating drivers is FBNH’s intrinsic creditworthiness, as defined by its ‘b-’ Viability Rating (VR). 

“The rating considers the group’s exposure to Nigeria’s volatile operating environment and also factors in vulnerability in its capital position in the context of moderate earnings generation and asset-quality pressures, where headroom above the minimum regulatory capital requirements is also moderate. Capitalisation is a factor of high importance to the VR.” 

Fitch also said it believes the governance shortcomings cited by the CBN reflect poorly on FBNH’s reputation and on the group’s governance and control practices. As a result, it revised down its assessment of FBNH’s Management and Strategy score to ‘b-’ from ‘b’. “We also assigned a negative outlook to this factor, which reflects the uncertainty surrounding additional remedial actions that the CBN may impose due to these related party exposures as well as the potential for further uncovering of governance irregularities. 

It also captures the lack of track record of the new board and its ability to restore confidence in FBNH and FBN. “Asset quality remains a rating weakness. FBNH reported an improved impaired loan ratio of 7.9 per cent at end-1Q21 (end-2020: 7.7 per cent).”

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