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Nigeria:TEXT-Fitch affirms First Bank of Nigeria

Text-Fitch Ratings has affirmed Nigeria-based First Bank of Nigeria Plc’s (FIRSTBA.LG: Quote) (FBN) ratings at Long-term foreign currency Issuer Default Rating (IDR) ‘B+’, Short-term foreign currency IDR ‘B’, Individual ‘D/E’ and Support ‘4’. The Support Rating Floor is affirmed at ‘B+’. The Outlook for the Long-term IDR is Stable. Fitch has also affirmed FBN’s National Long- and Short-term ratings at ‘A+(nga)’ and ‘F1(nga)’, respectively.

FBN’s IDRs, National and Support ratings reflect the limited probability of support for FBN, in case of need, from the Nigerian authorities. FBN’s well-established domestic franchise would mean a high level of willingness to support, but the propensity is limited by Nigeria’s ‘BB-‘ Long-term foreign currency IDR. FBN’s Individual rating takes into account significant deterioration in asset quality and financial performance in FY09 and low levels of capital. However, Fitch notes FBN’s improved financial performance in H110 as well as the strength of its domestic funding franchise.

FBN’s FY09 earnings were materially affected by higher impairments, lower revenue growth and increased operating costs. The significantly higher impairment charges were driven by defaults arising from loans secured by quoted shares, exposures to the oil and gas sector and a weaker credit environment. Although Fitch expects the momentum in FBN’s improved financial performance to H110 should continue through the rest of the year, FBN’s financial performance to FYE10 may depend on how operating costs are managed whilst revenues remain constrained.

Credit growth slowed significantly in FY09 and H110 as gross loans grew 17.9% (FYE08: 55.7%) and contracted 1% respectively. Credit risk within FBN is highly concentrated with the largest non-bank exposure representing 28.5% of shareholder funds at FYE09. In addition, given FBN places a substantial portion of its surplus liquidity into the interbank market, it has sizeable exposures to Nigeria’s banks, part of which is to failed banks with a portion of these facilities benefiting from the Central Bank of Nigeria [CBKNG.UL] inter-bank guarantee.

Asset quality deteriorated significantly during FY09, with FBN reporting a non-performing loan (NPL) ratio of 8.2% at FYE09 (FYE08: 4.7%). However, asset quality indicators improved to 5.7% at end-H110 following sizeable write-offs. FBN’s asset quality indicators could have been weaker if the group’s money market placements with commercial banks had been excluded from the ratio calculations. FBN reported a coverage ratio of 70.1% at end-H110.

FBN’s tier 1 capital ratio has been steadily declining over the last couple of years to 16.4% in H110 from a high of 39.2% in March 2008. Fitch considers FBN’s overall levels of capital to be low given its weakened financial performance and asset quality indicators together with credit concentrations.

FBN is Nigeria’s largest bank by total assets, with a network of 610 branches at FYE09. The bank commenced operations in 1894 and provides universal banking services to corporate and retail clients.