FCMB Credit Ratings Score Slashed by S & P

FCMB has had their credit ratings cut by international ratings agency Standard & Poor. S & P cited “a history of volatile loan losses which reached higher than anticipated levels in 2011” as a major reason for the ratings cut.

The firm downgraded FCMB’s ratings from “adequate” to “moderate” in what will see the firm’s cost of leverage acquisition soar.

According to a statement from S & P, “We are lowering our long-term counterparty credit rating on FCMB to ‘B’ from ‘B+’ and affirming the ‘B’ short-term rating.”

S & P also expressed its concerns over the asset quality of the bank, saying it remained “vulnerable to high loan concentrations and foreign currency lending.”

The report continued, “In 2011, FCMB recorded a loss of Nigerian naira (NGN) 9 billion. This followed credit loss provisions of NGN32.5 billion, which reflected an underwriting loss and the valuation impact of the sale of problematic and large loans to the Asset Management Company of Nigeria (AMCON).

“Over the past four years, FCMB has had a volatile credit loss experience. In the 2008 financial year, the bank recorded a cost of risk of 8.93% while 2009 and 2010 credit losses were low. In our view, the variation in FCMB’s cost of risk reflects not only the economic cycles, interest rate spikes, and loan concentrations, but also weaknesses in the monitoring and recording of problem loans. The bank’s four-year average cost of risk stands at 4.95%, which      compares poorly with the average for rated Nigerian banks of around 3.5%.”

On the Finbank merger, the report said it expected it to improve the bank’s position. “The merger with Finbank is expected to improve FCMB’s business position through local market diversification and a larger branch network and deposit franchise. However, in order to improve our opinion of FCMB’s business position we would require the bank to continue to improve market share and competitiveness, thereby creating a sustainable track record of revenue stability.”