The Long-Term Issuer Default Rating (IDR) of First City Monument Bank (FCMB) has been affirmed at ‘B-with a stable outlook’ by Fitch Ratings.

According to a study published on Fitch Ratings’ website on Thursday, this is the case.

According to the rating discussion, the bank’s National Long-Term Rating was improved from ‘BBB(nga)’ to ‘BBB+(nga)’ due to its higher creditworthiness in comparison to other issuers in the country.
The paper emphasized the important rating factors that have resulted in improved impaired loan ratings in recent years.

FCMB’s National Ratings were also influenced by the bank’s standalone strength, with a capital adequacy ratio of 15.9%, which is more than the minimal regulatory requirement of 15%, according to the analysis.

Most important factors

The fundamental creditworthiness of FCMB, as described by its ‘b-‘ VR, drives its Issuer Default Rating.
FCMB’s exposure to Nigeria’s turbulent operating environment and significant credit concentrations is reflected in the VR.

This is offset by the bank’s appropriate capitalisation and asset quality for the rating, according to the agency’s comments, with the latter partly reflecting sizeable non-loan assets, namely Nigerian government securities (B/Stable) and cash placements.

In addition, the commentary highlighted noteworthy signals from FCMB’s loan books during the reference period.
In recent years, FCMB’s impaired loans (stage 3 IFRS 9) ratio has improved.
It declined to 3% at the end of 1H21 (from 3.6 percent at the end of 2019), owing to stronger economic conditions, loan growth, and write-offs.

According to the report, the bank is funded mainly by granular retail and SME deposits (70% of total funding at the end of the first half of 2021, 73% in the form of current and saving accounts). Deposit growth has been rapid in recent years, driving a reduction in the Fitch-calculated loans/customers deposits ratio to 70% at the end of H1 2021 (a level still above peers’) from 77% at the end of 2019.

The recent upgrade and affirmation are in line with its improved performances recorded in recent times.

A cursory analysis of its 2020 full-year performance shows a 10% increase in gross earnings despite the effect of the pandemic during the year. The bank was able to navigate its operations through the pandemic, thereby growing its profit after tax by 13.1% to N19.61 billion compared to N17.34 billion reported in the prior year.

Its statement of financial position also indicated improved assets as its total assets grew by a whopping 23.4% to N2.06 trillion as opposed to N1.67 trillion recorded in the year before. In addition, shareholders’ equity grew by 13.2% to N227.12 billion in 2020. Similarly, loans and advances to customers increased by 14.9% to N822.77 billion in the review period.

Meanwhile, Fitch attested that operating conditions in the country were gradually stabilising and forecasted a 1.9% GDP growth in 2021, following the contraction of 1.8% recorded in the previous year.

“Our baseline scenario is that business volumes and earnings should continue to rebound in 2021, while the rally in oil prices is also a positive factor.

Nevertheless, downside risks linger, given inherently volatile market conditions, with banks still exposed to foreign currency (FC) shortages, potential further currency devaluation, rising inflation and regulatory intervention by the Central Bank of Nigeria (CBN)” the report partly reads.

The board of directors of FCMB Group announced the appointment of Yemisi Edun as the Managing Director and CEO of the banking subsidiary in July 2021, which places her amongst notable female bank CEOS in the country.

As of the time of writing this article, FCMB was trading at N2.89 at the Nigerian Exchange Group.