FirstBank Shows Strength In S&P Ratings

(Sundiata Finance) — The recent ratings of S&P Global Ratings on First Bank of Nigeria Limited show that the bank’s regulatory capital has improved and the risk of breaching regulatory requirements has thus diminished, while the bank’s funding and liquidity remain credit strength. “We are therefore revising the outlook on FirstBank to stable from negative and affirming our global scale ratings at ‘B- /B’. In addition, we are raising the long-term national scale rating on FirstBank to ‘ngBB+’ from ‘ngBB’”, S&P said. The stable outlook reflects the firms view that the bank will maintain its regulatory capital adequacy ratio (CAR) above the minimum requirement, continue to stabilize asset quality, although still at weak levels, and maintain its above average funding and adequate liquidity over the next 12 months. Although asset quality remains a weakness, “in our view, it is stabilizing thanks to the steadying of the oil price and new management’s efforts. We expect FirstBank will continue to display weaker asset quality metrics and lower profitability than other rated top-tier banks in Nigeria in 2017 due to continuing high credit costs” The firm believes that the bank’s new leadership team will address the legacy asset quality issues and institute more prudent risk management measures. Cost of risk jumped to 10.4 percent at year-end 2016 from 5.7 percent at year-end 2015, and nonperforming loans (NPLs) increased to 24.4 percent for the same period compared with 18.1 percent the prior year. The performance of the bank’s portfolio stems from high concentration and foreign currency loans (51% of total loans in 2016), particularly the oil and gas-related exposures. his performance and the huge impairments have prompted the bank to recruit a new Chief Risk Oicer and launch a review of its risk management process to improve loans approvals, risk monitoring, and collection. he bank is also in the process of de-risking its loan portfolio by converting some of its vulnerable foreign currency exposures to local currency. In S & P opinion, cost of risk will remain high and above the sector average, but decline to 5.3 percent over the next 12-18 months, while we think NPLs will drop below 20 percent. At year-end 2016, the bank restructured 5% of its portfolio, with the oil and gas sector accounting for 70 percent of the total. “We expect FirstBank to continue to restructure some loans, particularly in the downstream oil, manufacturing, and general commerce sectors in 2017” (BusinessDay).

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