Fitch Removes FCMB from Rating Watch Negative
Fitch Ratings has affirmed First City Monument Bank Limited’s (FCMB) Long-Term Issuer Default Rating (IDR) at ‘B-‘ and National Long-Term Rating at ‘BBB+ (nga)’ and removed the ratings from Rating Watch Negative (RWN).
According to the rating note, the outlooks on FCMB are also accorded stable. In the note, Fitch said the removal from RWN reflects FCMB’s compliance with its regulatory total capital adequacy ratio (CAR) requirement of 15%.
The upgrade happened notwithstanding the sharp devaluation of the Nigerian naira since June 2023 and expectation that FCMB will remain CAR-compliant.
FCMB’s issuer default ratings are driven by its standalone creditworthiness, as expressed by its ‘b-‘ Viability Rating (VR), according to Fitch.
The global rating agency added that viability rating balances the concentration of FCMB’s operations in Nigeria’s challenging operating environment, its moderate franchise, high credit concentrations, weak profitability and thin buffers over minimum capital requirements against healthy liquidity coverage.
However, Fitch stated that FCMB’s National Ratings are lower than the highest-rated Nigerian banks due to FCMB’s smaller franchise, weaker profitability and thinner capital buffers.
“FCMB is a second-tier bank, representing 3% of domestic banking sector assets at end-2023. FCMB has weaker pricing power than larger banks and focuses on higher-margin segments such as mid-sized corporates and SME borrowers”, the rating note stated.
According to Fitch, FCMB’s single-obligor credit concentration is very high, with the 20 largest loans representing 250% of Fitch core capital (FCC) at end-2023.
Oil and gas exposure accounted for 29% of FCMB’s gross loans, which Fitch considered to be very high. These concentrations have increased following the devaluation of the naira in 1Q-2024, the rating note added.
Fitch also see FCMB’s exposure to Nigeria sovereign exposure through securities and Central Bank of Nigeria cash reserves to be very high relative to FCC at over 500% in 2023.
FCMB’s impaired loans (Stage 3 loans under IFRS 9) ratio increased to 4.2% in financial year 2023 from 3.7% in 2022.
The bank’s specific loan loss allowance coverage of impaired loans was 75% at the end of financial year 2023, according to Fitch.
It noted that stage 2 loans which reached 29% of gross loans in 2023; concentrated within oil and gas and largely US dollar-denominated remain high and represent a risk to asset quality.
In the rating note, .Fitch forecasted that the bank’s impaired loans ratio will moderately increase in the near term.
FCMB operating returns on risk-weighted assets averaged 2% over the past four years, Fitch said in the rating note.
They increased to 3.5% in 2023 from 1.9% in 2022, primarily driven by large FX revaluation gains stemming from a net long foreign-currency position that accompanied the naira devaluation. Analysts said the bank’s profitability will benefit from higher interest rates in 2024.
Its 15.1% capital adequacy ratio has a thin buffer above minimum requirement but Fitch expects this to strengthen in the near term as FCMB raises core capital in an effort to comply with new paid-in capital requirements effective end-1Q26.
In less than two years, FCMB will need to raise NGN397 billions of paid-in capital to meet the NGN500 billion requirement for a bank with international licence authorisation.
FCMB would be subject to just a N200 billion requirement if it divested its UK subsidiary and downgraded to national licence authorisation. Globus Bank to Raise 129bn, Chairman Peter Amangbo Explain Plans
