STANDARD & POORS’ ASSIGNS HIGH CREDIT RATINGS OF B+/B TO FCMB – 22 MAY 2008
- First City Monument Bank one of Nigeria's fastest growing universal banks, on Thursday 22 May reported that it has been assigned ‘B+/B‘ long term and short term counterparty credit ratings by Standard & Poor’s (S&P)
Speaking from London Ladi Balogun, CEO of FCMB commented that “we feel the rating is a fair assessment of the bank in an emerging market like Nigeria that has successfully transformed from a merchant bank to universal bank". With total assets and contingents of N309 billion as at financial year end 30 April 2007 (US$2.45 billion at N126.45 to US$1) the bank is positioned as a mid size bank in Nigeria. “We are the first in our peer group to obtain an international credit rating from Standard and Poor's and we are pleased with the outcome, all the more so because of the high rating assigned” he added. The Standard & Poor’s rating is just one notch below Nigeria’s long term sovereign rating of BB- and is the same Ghana's sovereign rating.
Standard & Poor’s is the world’s foremost provider of independent credit ratings. Their credit ratings provide investors with the independent benchmarks they need in order to make investment and pricing decisions.
In its report on FCMB, S&P list four major strengths that contributed towards the rating:
Robust Capital Levels
The report states that ‘to date the bank has adequate liquidity and is well capitalized which provides a cushion against the (credit) risk for investors’. Kenny Aliu, head of Structured Finance who led the rating exercise commented: “When covering a bank in an emerging economy like Nigeria S&P look out for operational risk and credit risk. We are highly liquid and well capitalized as demonstrated by our successful Public Offer last year, this helps mitigate credit risk”. Last year, FCMB raised over N94 billion through an equity placement (roughly equivalent to US$805 million at N117.67 to US$1). The report goes on to point out that the bank’s credit risk concerns are mitigated by its modest loan leverage (gross loans to adjusted assets measured 56% as at 31 October, 2007), the short tenor of the loan book (just 20% of risk assets have a tenor above 1 year) and the high level of collateralization (91% of total risk assets are secured).
According to the report, as at October 31, 2007 the bank achieved a return before tax assets of about 5%, making it one of the most profitable institutions in the country.
Strong Investment Banking Niche
With an investment banking business built up over the last thirty years, FCMB’s ratio of fee generated income to total income is 52%, the highest by a wide margin in the Nigerian banking industry. In addition the bank uses its investment banking services to differentiate its corporate banking relationship, elevating them to a more strategic level and capturing a greater "share of wallet".
The report commends FCMB’s strategy to focus on high growth high margin segments of investment, transaction and consumer banking given the high growth and fast evolving economic environment in Nigeria. Execution risk with the strategy is minimized by a relentless focus on attracting, retaining and developing effective and experienced human capital with a combination of the best of home grown and internationally experienced talent and transaction banking. Mr. Balogun added: ‘the experience of our management team and our solid grasp were key factors towards being awarded the B+/B ratings. “We are pleased by the recognition S&P have placed on the capabilities of our management team and believe that if we execute upon our strategy and consolidate our market position, there is every likelihood the rating will strengthen. The bold step of embarking on a rating in the middle of a global credit crunch shows our commitment to transparency and desire to continue to attract debt capital to fund our rapid growth.".