GCR Ratings has affirmed the national scale long term and short term of A-(NG) and A2(NG), respectively of First Bank Nigeria Limited and revised the outlook to stable from negative rating watch.
GCR said the national scale ratings of the bank reflect the strength and weaknesses of FBN Holdings Plc, as the bank is regarded as the core entity within the group and accounts for about 95 per cent of the group’s total assets as at financial year (FY) 2020.
The rater said the negative rating watch of the bank was revised to a stable outlook based on the bank’s prompt resolution of tensions and inherent operational risk surrounding the constitution of the bank’s and groups’ board by the Central Bank of Nigeria in April 2021.
“GCR will, however, continue to monitor the management and governance assessment and would react accordingly should there be any adverse impact on operations from a reoccurrence of the highlighted issues within the short to medium-term.
“The affirmed ratings reflect First Bank’s well-established brand franchise, good geographic diversification, and robust funding and liquidity position. However, these strengths are partly offset by the subdued capitalisation and elevated concentration risk across obligor, sector, and foreign currency (FCY) exposures,” it said.
As a top-tier bank in Nigeria with operations in seven African countries and three international financial markets, First Bank controlled a market share of Nigerian banking industry’s total assets, gross loans and customer deposits at 14.1 per cent, 13.8 per cent and 12.1 per cent, respectively, as at 2020.
GCR said the bank’s retail franchise and market position have been strengthened by its extensive branch networks, sustained investment in technology and the increasing number of firstmonie agents.
“While revenue stability is good, the bank’s key profitability indicators (ROE and ROA) continue to lag tier-one peers’ average.
“The group’s risk profile evidenced a notable improvement over the review period, underpinned by management’s remedial action and loan book clean-up exercise over the last five years,” GCR said.
Explaining further, it said the banks non-performing loans declined steadily to 7.2 per cent at first half 2021 (FY20: 8.3 per cent, FY19: 10.2 per cent, FY18: 25.4 per cent), remaining above CBN’s tolerable five per cent limit and industry’s six per cent average.
Also, the bank’s credit losses moderated to 2.0 per cent at first half 2021 (FY20: 2.4 per cent, FY19: 2.6 per cent, FY18: 4.0 per cent), and counterbalanced by the elevated concentration risk.
The rater further said the bank’s top 20 obligors constituted a sizeable 48.5 per cent of the loan portfolio at first half 2021(FY20: 53.7 per cent), 34.5 per cent of the loan book at 1H FY20 tilted towards the oil and gas sector, although at a decreasing rate, while FCY loans constituted a sizeable 47.5 per cent of the loan portfolio at 1H FY21 (FY20: 47.9 per cent) and measured above the estimated industry average of 35 per cent.
The bank’s management had said FCY risk is partly mitigated through effective matching of related assets and liabilities and hedging through OTC futures transactions and forwards.
“Looking ahead, we anticipate the planned disposal of identified assets (as directed by the CBN) would support capitalisation metrics by about 200bps over the rating horizon. As a result, we expect the core capital ratio to hover around 15% over the next 12-18 months. We also believe the sustained downward trend in credit losses and improved value propositions through leveraging digital platforms will further augment internal capital generation going forward,” GCR said.
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