Fitch Upgrades FCMB to ‘B’ with Outlook Stable
Fitch Ratings has upgraded First City Monument Bank Limited’s (FCMB) Long-Term Issuer Default Rating (IDR) to ‘B’ from ‘B-‘ and National Long-Term Rating to ‘A(nga)’ from ‘BBB+(nga)’. It also accorded its outlook on the bank rating as stable.
In a rating note, Fitch said the upgrades are driven by the upgrade of the Viability Rating to ‘b’, from ‘b-‘, which reflects an improvement in the Nigerian operating environment and its impact on FCMB’s standalone creditworthiness, including higher profitability due to tighter monetary policy and stronger capital buffers following a recent capital raising.
The bank ratings upgrade followed a recent improvement in Nigeria’s sovereign credit assessment, according to Fitch. The rating note highlighted that FCMB’s ratings are driven by its standalone creditworthiness, as expressed by its ‘b’ viability.
The bank viability rating is noted to capture the concentration of operations in Nigeria, a moderate franchise, high exposure to the sovereign, and a reasonable financial profile.
Fitch added that FCMB’s national ratings are lower than the highest-rated Nigerian banks due to its smaller franchise, weaker profitability, and thinner capital buffers.
Fitch recently upgraded Nigeria’s Long-Term IDRs to ‘B’, the exchange rate has stabilised, profitability and foreign-currency liquidity have improved, and capital raisings are driving a recovery in capitalisation.
However, inflation remains high, regulatory intervention is burdensome, and expiring forbearance on oil and gas loans will lead to an increase in impaired loans (Stage 3 loans under IFRS 9) ratios and prudential provisions.
FCMB, a tier 2 bank, accounts for 3.7% of domestic banking sector assets at 2024. It has weaker pricing power than larger banks and focuses on higher-margin segments, such as mid-sized corporates and SME borrowers, Fitch said.
It is also noted that the bank’s single-obligor credit concentration remains high, with the 20 largest loans representing 218% of Fitch core capital (FCC) at the end of 2024.
FCMB’s exposure to the oil and gas sector is considered significant at 33% of gross loans at the end of 2024. Nigerian sovereign exposure is substantial through holdings in securities and Central Bank of Nigeria cash reserves.
High Stage 2 Loans: FCMB’s Stage 2 loans (end-2024: 23% of gross loans) are concentrated within the oil and gas sector, largely US dollar-denominated, and represent a risk to asset quality.
Fitch believes that the impaired loans ratio of 6% will increase as large oil and gas exposures migrate from Stage 2 by the end of 2025 due to the expiry of forbearance. The rating note highlighted that specific loan loss allowance coverage of impaired loans was 45% in Q1-2025, reflecting a reliance on collateral.
FCMB is noted to have moderate profitability, with operating returns on risk-weighted assets averaging 2.2% over the past four years. The tier-2 bank’s profitability is weaker than larger Nigerian banks due to higher funding costs and non-interest expenses. Lower reliance on term deposits is expected to help to reduce funding costs in 2025, Fitch said.
In the rating note, Fitch explained that FCMB’s FCC ratio increased to 16.2% in 2024, from 14.7% in 2023, after a public offer of N147.5 billion in 4Q-2024. The bank-solo total capital adequacy ratio also improved to 19.3% at the end of 2024 and has adequate room above the 15% minimum requirement.
Fitch expects buffers to further improve in 2025 as FCMB raises more capital to comply with new paid-in capital requirements effective at the end of 1Q2026. However, capital buffers are under pressure from increased prudential provisioning of problem oil and gas loans.
Reflecting its competitive condition, Fitch said FCMB has a higher reliance on term deposits than peers, which represented 35% of the total customer accounts at end-1Q25, down from 43% in 2024. The rating agency stated that the bank’s depositor concentration is moderate, with the 20 largest depositors representing 19% of the total at the end of 2024. Liquidity coverage in naira and foreign currency is healthy.
