FCMB’s Operating Profitability Among Weakest—Fitch

By Dipo Olowookere

The operating profitability of First City Monument Bank (FCMB) Plc is well below the sector average and among the weakest of all rated Nigerian banks, Fitch Ratings has revealed.

This information was contained in a statement issued by the rating firm, which announced affirming the lender’s Long-Term Issuer Default Rating (IDR) at ‘B-‘ with stable outlook.

Fitch said however, the bank’s asset quality performance is healthy, particularly given challenging operating conditions in Nigeria, including tight local and foreign currency liquidity.

It added that tight liquidity stems from the sharp fall in oil prices, which has adversely impacted asset quality sector-wide.

FCMB’s VR also considers its modest franchise, with a market share of around 4% of loans and deposits. In our view, this drives a high risk business model, including high concentrations and a higher volume of lending down the credit curve to smaller corporates and commercial customers, it said.

The franchise also drives weak earnings metrics and a weaker funding and liquidity profile than larger Nigerian banks and the lender has a reasonable retail deposit franchise, but deposits have to be supplemented by short- and long-term wholesale funding to support operations.

According to Fitch, FCMB’s National Ratings are a reflection of its creditworthiness relative to the best credits in Nigeria. FCMB’s National Ratings consider generally weaker financial metrics than peers, and the bank’s modest franchise.

Fitch said it believes that sovereign support to Nigerian banks cannot be relied on given Nigeria’s (B+/Negative) weak ability to provide support, particularly in foreign currency.

In addition, there are no clear messages from the authorities regarding their willingness to support the banking system. Therefore, the Support Rating Floor of all Nigerian banks is ‘No Floor’ and all Support Ratings are ‘5’.

“This reflects our view that senior creditors cannot rely on receiving full and timely extraordinary support from the Nigerian sovereign if any of the banks become non-viable,” the rating agency disclosed.

FCMB’s IDRs are sensitive to a rating action on its VR. FCMB’s VR is sensitive to a material weakening of liquidity in either foreign or local currency. It is also sensitive to a sharp deterioration in asset quality that would erode capital and threaten the bank’s viability. This is not Fitch’s base case. An upgrade of the bank’s VR would require a material improvement in the Nigerian operating environment and/or a significant expansion of the bank’s company profile, it said.