Fitch Ratings has affirmed the Long-Term Issuer Default Ratings (IDRs) of FBN Holdings Plc (FBNH) and its primary operating subsidiary, First Bank of Nigeria Ltd (FBN), at ‘B-‘ with a Negative Outlook.
The affirmation is to reflect the rating agency’s view that “the impact of the Central Bank of Nigeria’s (CBN) replacement of FBNH and FBN’s boards, the identification of corporate governance failings and the imposition of corrective measures are tolerable at the rating level.”
The CBN on the 29th of April 2021 “removed the non-executive directors on the boards of FBNH and FBN and replaced them with its own appointees. According to the apex bank its actions were in the interest of financial stability and minority shareholders.
The CBN said it acted because FBN had made significant executive management changes, including replacing the CEO, without prior notice or approval of the regulator. The CBN also highlighted corporate governance failings pertaining to long-standing and problematic related-party exposures, and failure to comply with regulatory directives.
Fitch Ratings said that the near-term financial impact of these actions on FBNH and FBN and believe this is tolerable at the rating level, even though the final outcome is uncertain adding that CBN’s actions “will not have a material effect on the group’s asset quality, profitability and capitalisation.”
“The Outlook remains Negative, reflecting FBNH’s pre-existing asset quality and capitalisation weaknesses as well as the group’s corporate governance weaknesses highlighted by the CBN. These could put pressure on the ratings.”
“Asset quality remains a rating weakness. FBNH reported an improved impaired loan ratio of 7.9% at end-1Q21 (end-2020: 7.7%). However, FBNH’s reported reserve coverage of 54.5% at end-1Q21 (end-2020: 48%) remains significantly weaker than domestic peers’. Our assessment indicates that if the related-party loan highlighted by the CBN were classified as impaired, the ratio would be unlikely to be above 10% (excluding any new impaired loan generation from ordinary business).”
“Capitalisation remains a rating weakness and has a high influence on the ratings. FBN reported a capital adequacy ratio of 16.6% at end-1Q21 (excluding interim profits), which provides limited headroom above its 15% minimum regulatory requirement. In addition, FBNH’s capitalisation metrics remain vulnerable to asset-quality risks given significant capital encumbrance by unreserved impaired loans.”
Ifunanya Ikueze is an Engineer, Safety Professional, Writer, Investor, Entrepreneur and Educator.