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Global rating firm to downgrade First Bank after CBN’s intervention

Moody’s Investors Service, (Moody’s) has placed all long-term ratings and assessments of First Bank of Nigeria Limited (FBN) on review for downgrade over the dissolution of the bank’s board by the Central Bank of Nigeria (CBN), the bank’s primary regulator.

The board of the bank was dissolved by the CBN and  all the non-executive directors were removed while the executive management remained in place.

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 been executed in the recent past.

Moody’s notes that the outcomes of these developments are uncertain at this point, and the final and long-term governance, reputational and financial implications of the events for First Bank are also unclear.

While the bank’s executive management team remained the same, the rating agency believes these developments could distract management’s focus on implementing the bank’s strategic plan and road to recovery. First Bank management’s immediate key target was to reduce nonperforming loans (NPLs) to levels comparable with domestic peers. The rating agency recognises that, in the context of asset risks, the bank took steps to reduce its stock of problem loans, with its reported NPL ratio falling to 7.7 percent at year-end 2020 from 25.9 percent in 2018.

Moody’s also notes the reputational risks associated with recent development as they could potentially influence investor confidence. In addition, the rating agency notes First Bank’s relatively low proportion of provisions to its NPLs, at just about 40 percent, which puts its solvency at some risk in case higher loan-losses materialise than previously expected.

The review for downgrade will focus on First Bank’s ability to address the shortcomings highlighted by the regulator as concerns its governance and risk procedures, among others, the management of its loan portfolio to related parties, and the rating agency will monitor any further corrective actions that the regulator may require. Moody’s will also assess the likely impact of these changes on the bank’s risk governance, its solvency level and its on-going efforts to reduce the bank’s stock of NPLs.

 

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