By Dipo Olowookere
The outlook on the Long-Term Issuer Default Ratings (IDR) of FBN Holdings Plc (FBNH) and its primary operating company, First Bank of Nigeria Limited (FBN), has been revised by Fitch Ratings to stable from positive, with the Long-Term IDRs affirmed at ‘B-‘.
A statement from the renowned agency said the revision of the outlooks reflects continuing asset quality pressure on FBNH and FBN’s credit profiles and expectations that this will take longer than previously anticipated to resolve.
It was stated that FBNH’s and FBN’s IDRs are driven by their standalone credit profiles, as defined by their Viability Ratings (VR), which influenced by the domestic operating environment, reflecting weak GDP growth, policy uncertainty and increasing regulatory risks.
In the statement, Fitch noted that the asset quality of the financial institution remains relatively weak compared with its peers, stating that through significant write-offs, restructuring and recoveries, FBNH has made noticeable progress in reducing its impaired loan (IFRS 9 Stage 3 loans)/gross loan ratio, which was 12.6 percent at end-3Q19 (end-2018: 25.9%) – albeit still high compared with peers.
“However, our assessment of this factor also considers modest reserve coverage of impaired loans and a sizeable book of stage 2 loans, which we estimate bring problem loans (stage 2 and stage 3 combined) at around 40 percent of total loans, a notably higher level than peers.
“In our view, the performance of Stage-2 loans within the next 18 months is uncertain and will largely be driven by the recovery prospects in the oil sector,” the rating agency said.
“While we recognise management’s success in reducing FBNH’s impaired loan ratio (FBNH guides an impaired loan ratio below 10 percent by end-2019), its asset quality metrics remain notably weaker than peers and also affect other rating factors.
“FBN’s bank-solo (unconsolidated) total Capital Adequacy Ratio (CAR) was only marginally above the 15% minimum regulatory requirement at end-3Q19, but is expected to strengthen by end-2019, when earnings are audited. Fitch also notes that when including profit for the period, the bank reported a CAR of 16.4 percent at end-3Q19,” it added.
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