By Odunewu Segun
International rating agency, Standard and Poors (S&P) has downgraded the credit ratings of Nigeria’s largest bank by market capitalization, FirstBank, from what in lay man’s terms will mean “this bank is in trouble”.
First Bank has basically been downgraded for two main reasons, its exposure to the oil and gas sector and the impact of it’s a devaluation of the Naira on its foreign denominated loans.
According to the report released on Thursday, S&P lowered its long-and short-term counterparty credit on FirstBank to ‘B-/C’ from ‘B+/B’. Also it lowered its long-and short-term national scale ratings on the bank to ‘ngBB/ngB’ from ‘ngA-/ngA-2, placing the long-term rating on CreditWatch with negative implications.
“At the same time, we placed on CreditWatch with negative implications our ‘B-‘long-term global scale counterparty credit rating on FirstBank’s nonoperating holding company (NOHC), FBN Holdings Plc (FBNH). We lowered our long-term national scale rating on FBNH to ‘ngBB’ from ‘ngBB+’ and also placed it on CreditWatch negative. We affirmed our ‘C’ short-term global scale and ‘ngB’ short-term national scale ratings on FBNH”
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Standard and Poors said the ratings reflect its view that FirstBank will continue to exhibit comparatively weaker asset quality metrics than rate top-tier banks in Nigeria and lower earnings than its peers in 2016 due to high cost of doing business in the country.
National Daily investigation reveals that the recent introduction of a flexible exchange rate for forex is also going to be catastrophic for the bank. According to S&P, they could rate the bank even worse if the CBN devalues the Naira. The Naira wasn’t devalued but was left to float which is in a way the same thing.
“The negative CreditWatch placement reflects our view that FirstBank’s capital adequacy ratio could fall below the minimum regulatory capital adequacy ratio in case of a devaluation of the naira beyond our base-case scenario” it said.
It also added that it could lower the ratings on FirstBank by one notch if asset quality deteriorated further, leading to higher credit losses and NPLs than anticipated.
“Alternatively, we could affirm the ratings on FirstBank at the current levels if the bank does not breach the minimum regulatory capital adequacy ratio upon effective devaluation of the naira”