FCMB rated B In Fitch Ratings : Stable Outlook For IDR

Fitch Ratings has affirmed First City

Monument Bank Limited's (FCMB)

Long-Term Issuer Default Rating (IDR)

at 'B-'. The Outlook is Stable. A full list

of ratings is at the end of this

commentary.

Key Rating Drivers

IDRS, VR AND National Ratings

The IDRs of FCMB are driven by its

standalone credit profile, as defined

by its Viability Rating (VR). This

reflects FCMB's weak financial metrics,

partly due to the bank's limited

company profile and higher-risk

business model, as well as the

challenging operating environment in

Nigeria.

The operating environment in Nigeria

remains tough, with the country

having recently emerged from a

recession. Although access to foreign

currency (FC) has eased, many

borrowers retain limited capacity to

service obligations and there are few

opportunities for banks to grow their

loan portfolios.

FCMB's modest franchise is illustrated

by the bank's small (4%) market share

of domestic credit. In our view, this

drives a high-risk business model,

including high concentrations and a

high volume of lending to smaller

corporates and commercial customers.

This leaves the bank particularly

vulnerable to macroeconomic

challenges. The franchise also

constrains earnings, with operating

profitability well below the sector

average due to high loan impairment

charges (LICs) and an above-average

cost of funding, hurting FCMB's ability

to build up capital.

We view FCMB's asset quality position

as vulnerable. FCMB's low impaired

loans/ gross loans ratio (5.7% at

end-1H18) relative to peers' has been

helped by a steady flow of write-offs

in 2017. Stage 2 loans under IFRS 9

accounted for 13% of gross loans at

end-9M18 and comprised mostly

restructured oil and gas exposures,

which are vulnerable to another oil

price correction. FCMB displays high

credit concentration by sector and by

obligor, exposing FCMB to the risk of

unexpected losses.

We view FCMB's capital position as no

more than adequate with a Fitch Core

Capital (FCC) ratio of 16.4% in 2017.

Capital, in our view, is vulnerable to

deterioration in asset quality

notwithstanding a sharp increase in

reserve coverage of impaired loans,

following the implementation of IFRS

9.

FCMB's FC liquidity improved in 2017,

in line with easing market conditions.

FCMB has remitted all state-related FC

deposits to the Central Bank of

Nigeria's treasury single account (TSA)

and has cleared all extended trade-

finance obligations. However, FC

liquidity remains tight, although

positively the bank has limited FC

short-term wholesale/bilateral

obligations.

The Stable Outlook on FCMB's Long-

Term IDR reflects our base case

expectation that the bank's financial

metrics will not change significantly

over the coming year.

FCMB's National Ratings reflect the

bank's creditworthiness relative to the

country's best credit and to that of

peers operating in Nigeria.

Support Rating And Support Rating Floor FCMB's Support Rating (SR) and Support Rating Floor (SRF) reflect uncertainty over the ability of the authorities to support banks,

particularly in FC. 

In addition, there

are no clear messages from the

authorities regarding their willingness

to support the banking system. Our

view is that senior creditors cannot

rely on receiving full and timely

extraordinary support from the

authorities should a bank become non-

viable. Therefore, the SRF of all

Nigerian banks is at 'No Floor' and all

Support Ratings are '5'.

Rating Sensitivities

IDRS, VR, AND National Ratings

FCMB's IDRs are sensitive to a change

in the bank's VR. Although not a base

case, a downgrade of the VR is most

likely to be driven by weak

performance of the bank's

restructured oil book with migration

of some exposures from stage 2 to

stage 3 loans, in turn likely to be

driven by renewed pressure in oil

prices.

Positive rating action is unlikely in the

short-term given the still fragile

operating environment and FCMB's

niche franchise. An upgrade of the

bank's VR would require a material

improvement in the Nigerian

operating environment or a

significant expansion of the bank's

company profile translating into better

financial performance.

FCMB's National Ratings are sensitive

to a change in the bank's

creditworthiness relative to other

Nigerian bank issuers'.

Support Rating And Support Rating Floor. 

An upgrade of FCMB's IDRs may also

result from sovereign support being

factored into the bank's ratings.

FCMB's SR and SRF could be upgraded

and revised higher, respectively, if

Fitch sees an improvement in the

authorities' ability to provide support

in FC, particularly for a systemically

important bank. An improvement in

the ability to support could be

indicated by further accumulation of

external reserves and a sustainable

exchange rate.

The rating actions are as follows:

Long-Term IDR affirmed at 'B-';

Outlook Stable

Short-Term IDR affirmed at 'B'

Viability Rating affirmed at 'b-'

Support Rating affirmed at '5'

Support Rating Floor affirmed at 'No

Floor'

National Long-Term Rating affirmed

at 'BBB(nga)'

National Short-Term Rating affirmed

at 'F3(nga)'

Source: proshare