Nigeria: Fitch Affirms FBN Holdings, First Bank ‘B-‘ Ratings

Nigeria: Fitch Affirms FBN Holdings, First Bank 'B-' Ratings

Fitch Ratings has affirmed the long-term Issuer Default Ratings (IDRs) of FBN Holdings Plc (FBNH) and its subsidiary, First Bank of Nigeria Ltd (FBN), at ‘B-‘.

But the rating agency in a statement yesterday assigned the financial institutions negative outlooks.

According to the global rating agency, the negative outlooks primarily reflected the corporate governance weaknesses highlighted by the Central Bank of Nigeria (CBN) in the financial institutions in April 2021, pertaining to long-standing and problematic related-party exposures at FBNH.

"We understand that these issues have not yet fully been resolved by FBNH, which creates uncertainty surrounding further remedial actions that CBN may impose and puts pressure on the ratings.

"In light of the latter, and given FBNH’s limited headroom above minimum capital requirements and thin capital buffer to absorb potential shocks, its weak capitalisation also drives the negative outlook," the statement added.

FBNH is the non-operating holding company that owns FBN. "FBNH’s ratings are aligned with those of FBN, its main operating subsidiary. FBN’s ratings are driven by its standalone creditworthiness. Currently, FBN represents around 90 per cent of consolidated group assets.

"FBNH’s long-term IDR is driven by its intrinsic creditworthiness, as defined by its ‘b-‘ Viability Rating (VR). The VR considers the group’s exposure to Nigeria’s volatile operating environment, given the impact on its financial metrics. The negative outlook is driven by corporate governance weaknesses, which we consider to be a factor of high importance to the VR, along with modest headroom above the minimum regulatory capital requirements," it added.

Fitch pointed out that operating conditions in Nigeria were gradually stabilising. Therefore it forecasted a 1.9 per cent Gross Domestic Product (GDP) growth for the country in 2021, following a 1.8 per cent decline in 2020.

"Our baseline scenario is that business volumes and earnings should continue to rebound in 2021, while the rally in oil prices is also a positive factor. Nevertheless, downside risks linger, given the inherently volatile market conditions, with banks still exposed to foreign-currency shortages, potential further currency devaluation, rising inflation and regulatory intervention by the CBN," it added.

In April 2021, the CBN removed the non-executive directors from the boards of FBNH and FBN – a domestic systemically important bank – and replaced them with its own appointees. The CBN stated then that its actions were in the interest of financial stability and minority shareholders. It further stated that it acted because FBN had made significant executive management changes, including replacing the […]

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