Fitch Ratings has upgraded First Bank of Nigeria’s (FBN) subordinated notes to ‘CCC+’/’RR5’ from ‘CCC’/’RR5’ and removed them from Rating Watch Positive (RWP). The notes were issued through FBN Finance Company BV, a special purpose vehicle, which was established to provide funding for the bank. FBN’s other ratings are unaffected.
The upgrade follows the introduction of ‘+’ and ‘-‘ modifiers to ‘CCC’ Long-Term Issuer Default Ratings (and long-term debt ratings), as per Fitch’s Bank Rating Criteria published on 23 March 2018. Fitch placed the subordinated notes’ ‘CCC’/’RR5’ rating on RWP following the publication of the Global Bank Rating Criteria Exposure Draft on 12 December 2017, which proposed the introduction of such modifiers.
KEY RATING DRIVERS
FBN’s subordinated notes are rated one notch below its ‘b-‘ Viability Rating (VR). This reflects zero notches for non-performance risk relative to the VR and one notch for loss severity. The one notch for loss severity reflects Fitch’s view of below-average recovery prospects, as defined by the notes’ recovery rating of ‘RR5’.
As the notes are notched down from FBN’s VR, their rating is primarily sensitive to a change in the VR. The notes’ rating is also sensitive to a change in notching due to a revision in Fitch’s assessment of the probability of the notes’ non-performance risk relative to the risk captured in FBN’s VR, or in its assessment of loss severity in case of non-performance.