By Modupe Gbadeyanka
One of the local rating agencies, Global Credit Ratings (GCR), has affirmed the national scale credit ratings assigned to First City Monument Bank (FCMB) of A-(NG) and A2(NG) in the long term and short term respectively; with the outlook accorded as negative.
GCR disclosed in a statement issued on Friday, August 25, 2017, that the ratings are valid until August 2018.
Explaining the rationale behind the ratings, GCR the ratings reflect the lender’s financial and competitive position as a mid-sized (Tier 2) bank in Nigeria based on its key financial performance metrics.
Despite improved operating performance in FY16, the bank remains exposed to ongoing challenges in the domestic operating environment including slow economic growth, currency weakness, foreign exchange (forex) shortages and policy uncertainty, that continue to exert pressure on banks’ (including FCMB) asset quality and earnings, the rating agency said.
It noted that shareholders’ funds grew by 9.6 percent at FY16, underpinned by retained earnings. Capital adequacy was, however, impacted by inflated risk weighted assets (mainly due to the effect of naira depreciation on the balance of risk-weighted assets denominated in foreign currency) which led to a slight decline in the risk weighed capital adequacy ratio (CAR) to 16.5 percent at FY16 (FY15: 16.9 percent), although remaining above the 15 percent statutory minimum requirement. At 1H FY17, the ratio was reported at an improved 17 percent.
Although the gross non-performing loan (NPL) ratio improved to 3.7 percent in FY16 (FY15: 4.2 percent), this was chiefly supported by the loan book clean-up exercise undertaken by the bank, with impaired credits totalling N32.5 billion written off the bank’s loan book during the year.
Given these write offs, specific coverage of impaired loans declined to 25.5 percent at FY16 (FY15: 45.2 percent).
The NPL ratio rose to 4.7 percent at 1H FY17, but remained within the regulatory limit of 5 percent. Management has tightened lending criteria, established a dedicated unit to focus on recoveries, and committed to diversify the loan book by targeting lending to less susceptible sectors to contain NPL formation and ensure a quality loan book going forward.
A matching of assets/liabilities maturities at FY16 showed cumulative liquidity gaps across the ‘less than 12 months’ maturity buckets.
The liquidity gap stood at N253.7 billion in the ‘less than 30 days’ maturity bucket and equated to 1.4x capital at FY16.
Furthermore, although the bank closed with 31.2 percent statutory liquidity at FY16, liquidity pressure was evidenced as zero buffer was maintained above the 30% statutory requirement at some points during the year.
This pressure has persisted into 1H FY17, with the statutory liquidity ratio at 30.1 percent, GCR said.
Notwithstanding, it added, the 150.4 percent escalation in impairments charges to N35.5 billion, net profit after tax grew 3.4x to N12 billion during FY16.
Growth was mainly supported by large one-off revaluation gains booked on net foreign currency positions arising from Naira devaluation during the year.
Accordingly, ROaE and ROaA ended stronger at 10.4 percent (FY15: 4 percent) and 1.4 percent (FY15: 0.5 percent) in FY16 respectively.
Unaudited financial results at 1H FY17, reported pre-tax profit of N2.5 billion, representing an annualised 63.8 percent decline.
GCR said upward movement in the rating(s) or outlook could result from sustained improvement in the bank’s profitability, asset quality, capital and liquidity metrics, as well as an enhanced competitive position.
It noted that negative rating action may follow pressure on asset quality, profitability, capital and/or liquidity metrics.
Dipo Olowookere 
Aduragbemi Omiyale