Fitch Keeps BOI Triple-A Ratings, Cites Solid Capital, Fund Profile
Amidst rising needs to support the real sector to drive growth, Nigeria’s development finance agency, Bank of Industry Limited’s (BOI), creditworthiness has been affirmed at ‘B-‘ by Fitch Ratings with a stable outlook.
Also, Fitch sustained Nigeria’s leading development finance institution’s national rating at ‘AAA (nga)’, citing solid capital and well-diversified funding records. According to the rating note, BOI maintained solid capitalisation, with a tangible equity-to-assets ratio of 17.4% at the end of the financial year 2022, which Fitch views as reasonable given the bank’s policy role in the challenging domestic operating environment.
It also added that the development finance institution’s internal capital generation is also good and fairly stable, minimising BOI’s reliance on capital support from the state.
The Nigerian authorities have a high propensity to support BOI given its 99.9% state ownership, well-established and clearly defined policy role, and a significant share of government-guaranteed funding.
According to Fitch Ratings, 74% of BOI’s borrowings as of 2022 were backed by the Nigerian government. Nonetheless, Fitch views the ability of the authorities to support BOI as limited, as indicated by Nigeria’s ‘B-‘/Stable sovereign rating.
BOI carries the sole mandate of financing its emerging industrial sector, with the ultimate goal of promoting financial inclusion, employment, and sustainable projects.
The development finance institution has a key and long-lasting policy role that would be difficult to transfer to another state-owned institution, in Fitch’s view.
In Nigeria, BOI provides low-cost, long-term financing to micro, small, and medium-sized enterprises and corporates via direct customer loans and customer loans granted at preferential rates and guaranteed by domestic banks.
Backed by the Nigerian government funding, the financial institution’s strategy is linked to public policy, including the country’s industrialisation and import-substitution initiatives.
The rating said BOI has diversified its funding in recent years, including the issue of a EUR700 million Eurobond in February 2022 that was guaranteed by the Federal Government of Nigeria (FGN)).
Also, EUR1 billion senior loan facility was also guaranteed by the Africa Finance Corporation; in addition to EUR50 million loan received from the French Development Agency in August and September 2022.
Additionally, the rating note indicated that the bank received two large syndicated loan facilities of EUR1 billion and USD1 billion in 2020, which are fully guaranteed by the Central Bank of Nigeria (CBN).
Bank of Industry lends to priority and emerging sectors typically under-served by other financial institutions. Its impaired loans ratio increased slightly in 2022 to 3.8% versus 3.4% in 2021.
Fitch noted that the ratio remained low notwithstanding muted loan growth of 3%. The bank’s impaired loan ratio has improved in recent years to 3.8% in 2022, down from 5.7% in 2018 due to lending growth and recoveries.
Total provisions coverage was slightly weaker at the end of 2022 at 60%, according to Fitch Ratings when compared with 63% reported in financial year 2021. #Fitch Keeps BOI Triple-A Ratings, Cites Solid Capital, Fund Profile
