London-29 October 2019: Fitch Ratings has affirmed Nigeria-based Bank of Industry Limited’s (BOI) Long-Term Issuer Default Rating (IDR) at ‘B+’. The Outlook for the IDR is Stable. A full list of rating actions is at the end of this rating action commentary.
KEY RATING DRIVERS
IDRS, SUPPORT RATING, SUPPORT RATING FLOOR AND NATIONAL RATINGS
BOI is a state-owned development bank and its Long-Term IDR is equalised with the Nigerian sovereign rating (B+/Stable) and driven by its Support Rating Floor (SRF) of ‘B+’, which reflects a limited probability of support from the Nigerian sovereign if required. The SRF considers BOI’s 99.9% state ownership, policy role and strategic importance to Nigeria’s economic and industrial development. The Stable Outlook on BOI’s Long-term IDR mirrors the Outlook on the sovereign.
BOI’s funding is long-term and sourced from the Central Bank of Nigeria and leading multilateral development banks (MDB) – the African Development Bank (AAA/Stable) and African Export-Import Bank (BBB-/Stable). Loans provided by these MDBs are guaranteed by the Nigerian state.
BOI’s strong capital ratios are prudent given the bank’s sensitivity to the volatile economic environment. As part of its budget allocation, the government has committed NGN10 billion of new capital to BOI each year from 2019. Dividend payouts are fairly low.
Profitability is not a key objective but the government requires the bank to be financially sustainable. BOI reported net income of NGN32.5 billion for 2018. BOI continues to generate good net interest margins owing to its low cost of funding and reasonable overall performance metrics, supported by fairly low loan impairment charges.
Fitch does not assign a Viability Rating to BOI, similar to our practice for other development banks. This is because it’s business model is entirely dependent on the support of the state and, in our view, its unique policy role cannot be carried out on a commercial basis.
RATING SENSITIVITIES
IDRS, SUPPORT RATING, SUPPORT RATING FLOOR AND NATIONAL RATINGS
BOI’s IDRs, Support Rating and SRF are sensitive to changes in Nigeria’s sovereign ratings. The bank’s ratings are also sensitive to a reduced propensity of the authorities to support the bank. This could be indicated by a change in BOI’s policy role, such as a shift into commercial activities, or a material reduction in government ownership. We have no reason to believe such changes are likely in the foreseeable future.
BOI’s National Ratings are sensitive to a change in Fitch’s opinion of BOI’s creditworthiness relative to other credits in Nigeria.
The rating actions are as follows:
Long-Term IDR affirmed at ‘B+’, Outlook Stable
Short-Term IDR affirmed at ‘B’
National Long-Term Rating affirmed at ‘AA+(nga)’
National Short-Term Rating affirmed at ‘F1+(nga)’
Support Rating affirmed at ‘4’
Support Rating Floor affirmed at ‘B+’
