LONDON, September 16, 2024 – Fitch Ratings has revised the Outlooks on FBN Holdings Plc (FBNH) and its primary operating subsidiary, First Bank of Nigeria Ltd (FBN), from Stable to Positive while affirming their Long-Term Issuer Default Ratings (IDRs) at ‘B-’. This decision underscores Fitch’s optimism about the banks’ creditworthiness in light of recent improvements in Nigeria’s sovereign outlook.
Thank you for reading this post, don't forget to subscribe!The National Long-Term Ratings for both entities remain at ‘A(nga)’ with Stable Outlooks. This revision reflects Fitch’s assessment that the recent positive shift in Nigeria’s sovereign rating is likely to benefit the credit profiles of these major Nigerian banks.
Key Rating Drivers:
• Strengthened Credit Profiles: The IDRs for FBN and FBNH are supported by their own credit strength, as indicated by their Viability Ratings (VRs). These ratings highlight the banks’ high exposure to Nigeria’s economy and their significant concentration of operations within the country.
• Impact of Economic Reforms: President Tinubu’s recent economic reforms, including the removal of the fuel subsidy, the devaluation of the naira, and higher electricity tariffs, present both challenges and opportunities. While these reforms have created short-term economic pressures, they are expected to enhance Nigeria’s credit profile and improve market liquidity over time.
• Banking Sector Insights: As Nigeria’s third-largest bank, FBN has a solid market position, characterized by a strong franchise and stable funding. However, it contends with high sovereign exposure and significant credit concentration, particularly in the oil and gas sector.
• Capital and Asset Quality: FBN and FBNH face challenges with thin capital buffers and high levels of impaired loans. Despite strong profitability, partly due to favorable foreign exchange revaluations, risks related to capital adequacy and asset quality persist.
Rating Sensitivities:
• Potential for Downgrades: Any downgrade in Nigeria’s sovereign rating, combined with severe naira devaluation or a sharp rise in problematic loans, could lead to a downgrade of the banks’ ratings. Additionally, a significant deterioration in foreign currency liquidity or capital adequacy could also prompt negative rating actions.
• Upside Potential: An upgrade in the banks’ ratings would require a concurrent upgrade of Nigeria’s Long-Term IDRs, along with stable financial conditions for the banks. Strengthening the banks’ credit profiles relative to other Nigerian issuers could also result in an upgrade.
Additional Observations:
• Debt Ratings: The senior unsecured debt issued through FBN Finance Company B.V. mirrors FBN’s Long-Term IDR. The Recovery Rating for these notes stands at ‘RR4’, suggesting average recovery prospects.
• Government Support: Fitch considers the likelihood of government support for FBNH to be limited due to the sovereign’s constrained financial resources and high debt service commitments.
• ESG Factors: ESG issues are currently viewed as having a minimal impact on the credit ratings, reflecting their limited influence on the overall rating decision.
This rating update reflects Fitch’s positive outlook on Nigeria’s economic reforms and their expected benefits for the financial sector.
