Fitch Ratings-London-07 February 2018: Fitch Ratings has affirmed First City Monument Bank Limited’s (FCMB) Long-Term Issuer Default Rating (IDR) at ‘B-‘. The Outlook is Stable. All FCMB’s other ratings have also been affirmed. A full list of rating actions is at the end of this rating action commentary.
KEY RATING DRIVERS
FCMB’s IDRs are driven by the bank’s intrinsic creditworthiness as defined by its Viability Rating (VR). FCMB’s VR considers its resilient asset quality, with an impaired loans ratio well below the sector average at 4.7% at end-June 2017. Asset quality performance is healthy, particularly given challenging operating conditions in Nigeria, including tight local and foreign currency liquidity. Tight liquidity stems from the sharp fall in oil prices, which has adversely impacted asset quality sector-wide.
FCMB’s VR also considers its modest franchise, with a market share of around 4% of loans and deposits. In our view, this drives a high-risk business model, including high concentrations and a higher volume of lending down the credit curve to smaller corporates and commercial customers.
The franchise also drives weak earnings metrics and a weaker funding and liquidity profile than larger Nigerian banks. Operating profitability is well below the sector average and among the weakest of all rated Nigerian banks. FCMB has a reasonable retail deposit franchise, but deposits have to be supplemented by short- and long-term wholesale funding to support operations.
FCMB’s National Ratings are a reflection of its creditworthiness relative to the best credits in Nigeria. FCMB’s National Ratings consider generally weaker financial metrics than peers and the bank’s modest franchise.
SUPPORT RATING AND SUPPORT RATING FLOOR
Fitch believes that sovereign support to Nigerian banks cannot be relied on given Nigeria’s (B+/Negative) weak ability to provide support, particularly in foreign currency. In addition, there are no clear messages from the authorities regarding their willingness to support the banking system. Therefore, the Support Rating Floor of all Nigerian banks is ‘No Floor’ and all Support Ratings are ‘5’. This reflects our view that senior creditors cannot rely on receiving full and timely extraordinary support from the Nigerian sovereign if any of the banks become non-viable.
RATING SENSITIVITIES
IDRS, VIABILITY RATING, AND NATIONAL RATINGS
FCMB’s IDRs are sensitive to a rating action on its VR. FCMB’s VR is sensitive to a material weakening of liquidity in either foreign or local currency. It is also sensitive to a sharp deterioration in asset quality that would erode capital and threaten the bank’s viability. This is not Fitch’s base case. An upgrade of the bank’s VR would require a material improvement in the Nigerian operating environment and/or a significant expansion of the bank’s company profile.
An upgrade of FCMB’s IDRs may also result from sovereign support being factored into the bank’s ratings.
FCMB’s National Ratings are sensitive to a change in its creditworthiness relative to other Nigerian banks.
SUPPORT RATING AND SUPPORT RATING FLOOR
The Support Rating is potentially sensitive to any change in assumptions around the propensity or ability of the sovereign to provide timely support to the bank.
