Moody’s Investors Service (“Moody’s”) has today affirmed Bank of Industry’s B2 Corporate Family Rating (CFR). Moody’s has also affirmed the bank’s National Scale long-term issuer rating of Aa3.ng. The outlook has been changed to negative from stable.
The action was prompted by the rating agency’s decision on 4 December 2019 to affirm the B2 rating for Government of Nigeria and change the outlook on the sovereign rating to negative from stable.
Recall : Moody’s Changes Nigeria’s Sovereign Ratings Outlook to Negative From Stable; Affirms The B2 Ratings – Dec 05, 2019
Rationale For Affirmation
Moody’s decision to affirm Bank of Industry’s ratings reflect the rating agency’s assumptions of a high probability of support given the full government ownership and development and policy mandates. The rating agency’s decision also reflects Bank of Industry’s (1) robust capital buffers, with a tangible common equity-to-tangible managed assets ratio of 24% at end of 2018, (2) stable liability structure consisting partly of long-term funding at concessional rates, and (3) relatively low problem loans ratio at 5.6% at year-end 2018. These strengths are balanced against Moody’s expectation that asset quality will be increasingly pressured given the bank’s plans to grow its loan book and Nigeria’s challenging operating environment.
In its assessment, Moody’s has taken into account Bank of Industry’s exposure to the oil and gas industry, at over 20% of its gross loans at year-end 2018, as an environmental risk that requires monitoring, particularly as the transition to low carbon economies accelerates. Given the bank’s overall loan book diversification, the rating agency views Bank of Industry’s environmental risk exposure as low and in line with the assessment of banks globally. In terms of corporate governance, the rating agency considers Bank of Industry’s risk management framework to be consistent and commensurate with its risk appetite against the background of its public policy mandate. Nonetheless, corporate governance remains a key credit consideration and requires ongoing monitoring.
Rationale For Negative Outlook
The negative outlook reflects the increasing risk of a weakening capacity of the Nigerian government to support Bank of Industry in case of need, as captured by the negative outlook assigned to the sovereign rating. Bank of Industry’s credit profile is directly linked to the credit profile of Government of Nigeria via the shareholding, and as a result, a deterioration of government finances could reduce the willingness and the capacity to support Bank of Industry. In addition, Bank of Industry’s role as a counter-cyclical lender further exposes its credit profile to negative pressure given the rating agency’s view that Nigeria’s economic performance will remain challenging, with real GDP growth at just above 2% for the next few years.
What Could Change The Rating Up/Down
There is a low likelihood of upward rating movement in view of the negative outlook. However, Bank of Industry’s outlook could change back to stable, if the sovereign rating outlook is stabilized and the bank maintains a resilient financial performance.
Bank of Industry’s ratings could be downgraded in the event of a downgrade of the sovereign. Also, any significant deterioration in asset quality and profitability could negatively impact Bank of Industry’s standalone credit profile and issuer ratings. Further, Moody’s could downgrade Bank of Industry’s issuer ratings due to an increase in leverage through secured borrowings that would reduce the recovery rate for senior unsecured debt classes.
List Of Affected Ratings
Issuer: Bank of Industry
….Long-term Corporate Family Rating, affirmed B2
….Long-term Issuer Ratings (Local and Foreign Currency), affirmed B2
….NSR Long-term Issuer Ratings (Local and Foreign Currency), affirmed Aa3.ng
….Short-term Issuer Ratings (Local and Foreign Currency), affirmed NP
….NSR Short-term Issuer Ratings (Local and Foreign Currency), affirmed NG-1
….Outlook changed to Negative from Stable