South Africa

Nigeria: Fitch Affirms FBN Holdings' Ratings At 'B-' Negative

Fitch has affirmed its Long-Term Issuer Default Ratings (IDRs) of FBN Holdings Plc (FBNH) and its primary operating subsidiary, First Bank of Nigeria Limited (FBN), at 'B-'with a Negative Outlook.

This is just as Moody's Investors Service has placed all long-term ratings and assessments of First Bank of Nigeria Limited on review for downgrade.

According to the Fitch the affirmation reflected its view that the impact of the Central Bank of Nigeria's (CBN) replacement of FBN Holdings and First Bank's boards, the identification of corporate governance failings and the imposition of corrective measures are tolerable at the rating level.

The CBN last month removed the non-executive directors on the boards of FBNH and FBN -a domestic systemically important bank- and replaced them with its own appointees.

The CBN said its actions were in the interest of financial stability and minority shareholders. It also said it acted because FBN had made significant executive management changes, including replacing the CEO, without prior notice or approval of the regulator.

The CBN also highlighted corporate governance failings pertaining to long-standing and problematic related-party exposures, and failure to comply with regulatory directives. Owing to this, Fitch stated: "We have assessed the near-term financial impact of these actions on FBNH and FBN and believe this is tolerable at the rating level, even though the final outcome is uncertain.

"In our view, any remedial actions imposed by the CBN, including a potential reclassification of related-party exposures as impaired, will not have a material effect on the group's asset quality, profitability and capitalisation."

Fitch said this does not consider any possible additional actions by the CBN, especially if FBN fails to implement the regulator's corrective measures or if there were any further uncovering of corporate governance irregularities.

"The outlook remains negative, reflecting FBNH's pre-existing asset quality and capitalisation weaknesses as well as the group's corporate governance weaknesses highlighted by the CBN. These could put pressure on the ratings," it said.

According to Fitch, rating considers the group's exposure to Nigeria's volatile operating environment and also factors invulnerability in its capital position in the context of moderate earnings generation and asset-quality pressures, where headroom above the minimum regulatory capital requirements is also moderate.

"Capitalisation is a factor of high importance to the Viability Rating (VR). The new boards appointed to FBNH and FBN comprise individuals with sufficient experience and expertise.

"However, we view such major change as hugely disruptive. There are no changes in FBNH and FBN's executive management team. We believe the governance shortcomings cited by the CBN reflect poorly on FBNH's reputation and on the group's governance and control practices.

"As a result, we have revised down our assessment of FBNH's Management and Strategy score to 'b-' from 'b'. We also assigned a negative outlook to this factor, which reflects the uncertainty surrounding additional remedial actions that the CBN may impose due to these related party exposures as well as the potential for further uncovering of governance irregularities. It also captures the lack of track record of the new board and its ability to restore confidence in FBNH and FBN.Asset quality remains a rating weakness," Fitch said.

Meanwhile, Moody's stated that its review will focus primarily on an assessment of evolving governance considerations at First Bank, specifically corporate governance developments.

"The review for possible downgrade reflects the rating agency's view that the removal of all non-executive directors of the bank's board by the regulator demonstrates corporate governance shortcomings and weaknesses in board oversight.

"The bank also needs to implement regulatory directives concerning the resolutions of loans to and shareholding in non-banking related parties, which reportedly had not be executed in the recent past," it added.

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