GCR Ratings (GCR) has affirmed First Bank of Nigeria Limited’s national scale long and short-term issuer ratings of A+(NG) and A1(NG) respectively, with the outlook revised to stable from positive.
First Bank of Nigeria Limited’s (FirstBank or the bank) ratings reflect the underlying credit profile of the broader FBN Holdings Plc (FBNH or the group) as GCR views FirstBank as the core operating entity within the group, accounting for over 90% of the group’s assets and earnings.
While the ratings have been assigned exclusively to the bank, the below analytical discussion relates primarily to the group.
The ratings were affirmed on account of FBNH’s sustained strong competitive position within Nigeria’s financial services sector, as well as a robust funding and liquidity profile.
Competitive position is a strong ratings driver, based on the group’s market share, geographical diversification as well as sustained improvement in financial performance relative to peers.
Being the fourth largest financial services group in Nigeria by earnings, deposits and asset size, FBNH plays a critical role in the Nigerian economy, such that the bank is considered a ‘domestic systematically important bank’ by the regulator.
The group operates under a strong local brand, developed through over a century of providing financial services in Nigeria and more recently in six other countries across Africa and the United Kingdom, as well as representative offices in France and China. FBNH also maintains a good relationship with global international financial institutions, which positions the group as a leader in trade finance in Nigeria.
Capitalisation is a key rating constraint, due to sustained increases in the risk weighted assets following successive devaluations of the Naira. The bank’s GCR core capital ratio (GCR CAR) has been declining since 2022 and reached c.13.0% as at March 2024 from 14.2% as at December 2023.
Management expects to raise an additional NGN270Bn (USD164.8M) equity for the bank – to meet new minimum capital regulatory standards. Thus, we expect the core capital ratio to remain within the 12.5% to 15.0% band over the next 12 months depending on how much fresh equity is injected and considering projected internal earnings accretion over the period.
FBNH’s risk position has not materially deteriorated despite significant local currency repricing, high interest rates and generally weaker macroeconomic indices.
In terms of credit risk, we have continued to see lower cost of risk and decreased non-performing loan (NPL) ratios as a result of pragmatic efforts to achieve and maintain better asset quality.
The group’s operational risk management framework has been fairly effective at combating cybersecurity threats. Nevertheless, the bank was a victim of internal fraud by which c. NGN40Bn (USD24.4M) was lost over a period of time. The management has since taken concrete steps to remedy the situation by aggressively pursuing recoveries and implementing stricter internal controls to prevent future occurrences.
The group’s funding structure is diversified, stable and relatively cheap.
Customer deposits typically make up over 75% of total funding, with an overall stable funds ratio that has averaged more than 90% in the last five years. Although funding is predominantly low cost, the average cost of funds has increased to 5.9% as of March 2024 (from 2.3% in December 2023) due to monetary policy tightening.
Liquidity is also strong, supported by behaviourally sticky deposits and good access to international financial institutions. The group also maintains sufficient liquid assets to meet local and foreign currency obligations. Liquid assets typically cover over 30% of deposits and over 200% of wholesale funding. Thus, funding and liquidity profile is a strong driver of the ratings.
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