Fitch affirms FBN Holdings ratings
Fitch Ratings, a leading provider of credit ratings, has affirmed the LongTerm 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.
The affirmation reflects its view that the impact of the Central Bank of Nigeria’s (CBN) replacement of FBNH and FBN’S boards, the identification of corporate governance failings and the imposition of corrective measures are tolerable at the rating level.
On April 29, 2021, the CBN 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 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.
“We have assessed the nearterm 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,” the Fitch report says.
However, 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 preexisting 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.
FBNH is the non-operating holding company that owns FBN. FBNH’S ratings are aligned with those of FBN, which represents around 90% of consolidated group assets) due to high capital and liquidity fungibility within the group, and low double leverage (at 95% at end-1h20) at the holding company level.
FBNH’S IDR is driven by its intrinsic creditworthiness, as defined by its ‘b-’ Viability Rating (VR). The rating considers the group’s exposure to Nigeria’s volatile operating environment and also factors in vulnerability 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 VR.
The new boards appointed to FBNH and FBN comprise individuals with sufficient experience and expertise. However, the rating agency views 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’,” Fitch says.