From Negative, Fitch Revises Bank of Industry’s Outlook to Stable
Fitch Ratings has revised Nigeria-based Bank of Industry’s (BOI) outlook to stable from negative, while affirming the bank’s long-term issuer default rating (IDR) at ‘B’.
According to the Rating firm, the outlook change follows a similar rating actions taken on Nigeria’s sovereign on 30 September 2020.
Read more on Nigeria’s rating: Fitch Revises Nigeria’s Outlook to Stable, Affirms at ‘B’
It said the affirmation of BOI’s ‘B’ Long- and Short-Term IDRs, ‘B’ Support Rating Floor (SRF).
This also support rating of ‘4’ reflects Fitch’s view of potential support the bank could receive from the Nigerian authorities in case of need.
The revision of the outlook on BOI’s long-term IDR to stable mirrors the outlook on the sovereign, the firm explained.
Fitch also equalised BOI’s long-term IDR and SRF with the long-term IDR of the sovereign as it believes that the Nigerian authorities have a high propensity to support BOI.
“Our assessment primarily reflects the bank’s important and clearly defined policy role in funding economic growth in Nigeria”; Fitch noted
The Rating firm explained that the review was supported by BOI’s 99.9% state ownership.
This is split between the Ministry of Finance (94.8%) and the Central Bank of Nigeria (CBN; 5.1%).
It noted that the entirety of the bank’s wholesale funding being either provided or guaranteed by the Nigerian state helps the review.
However, Fitch views the ability of the authorities to support BOI as limited as indicated by Nigeria’s ‘B’ long-term IDR.
BOI is Nigeria’s primary development bank, with the sole mandate of financing the country’s emerging industrial sector.
The bank works closely with federal and state governments, and Nigerian banks, to meet its developmental objectives.
Fitch recognised that BOI plays an important role in supporting important government policies.
This include provision of counter-cyclical loans since the onset of the economic crisis resulting from the coronavirus pandemic.
It said BOI has successfully managed to diversify its resources in recent years.
In March 2020, the bank secured a EUR1 billion loan facility from a syndicate of commercial banks and multilateral development banks, fully guaranteed by the CBN.
“We expect that it will serve to expand BOI’s lending to priority sectors”, Fitch stated.
It said BOI maintains a solid capital base with equity-to-asset ratio of 24.4% in the first half of 2020.
Fitch Ratings considered this prudent for the bank’s exposure to the volatile operating environment.
The Rating firm noted profitability is not a key objective.
However, it said BOI continues to generate reasonable returns on equity driven by healthy net interest margins and moderate loan impairment charges.
The affirmation of BOI’s long-term national rating of ‘AA+(nga)’ reflects the bank’s unchanged creditworthiness relative to that of other credits in Nigeria, Fitch said.
Viability Rating:
As is usual for development banks, Fitch explained that it does not assign a viability rating to BOI.
According to Fitch, this is because its business model depends on state support.
“In our view, BOI could not be carried out on a commercial basis”, the Rating firm stated.
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From Negative, Fitch Revises Bank of Industry’s Outlook to Stable
