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Fitch upgrades FBN Holdings to ‘B’ outlook stable

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Fitch Ratings has affirmed the Long-Term Issuer Default Ratings (IDRs) of FBN Holdings Plc (FBNH) and its subsidiary, First Bank of Nigeria Ltd. (FBN), ‘B’ from ‘B-’ with a stable outlook.

Fitch also upgraded their Viability Ratings (VR) to ‘b’ from ‘b-.’

The global rating agency said this in a report that the upgrade of the Long-Term IDRws that of the VRs, reflects the corporate governance irregularities publicly raised by the Central Bank of Nigeria (CBN) in April 2021.

“This include two longstanding related-party exposures, have largely been addressed and therefore risks to capitalisation have receded, helped by strong internal capital generation since the irregularities were raised.

“Fitch has withdrawn FBNH’s and FBN’s Support Ratings and Support Rating Floors as they are no longer relevant to the agency’s coverage, following the publication of its updated Bank Rating Criteria on 12 November 2021, in line with the updated criteria, we have assigned Government Support Ratings (GSR) of ‘no support’ (ns) to both issuers,” it said.

The agency said that FBNH and FBN had not been subject to penalties in relation to irregularities raised by the CBN in April 2021 and no further irregularities had been raised.

“FBN is the third-largest bank in Nigeria, representing 11 per cent of domestic banking-system assets at end-2021. A strong franchise supports a stable funding profile and a low cost of funding.

“Revenue diversification is strong, with non-interest income representing 48 per cent of operating income in 2021.”

On material credit concentrations, it said that single-borrower credit concentration was material, with the 20-largest loans representing 157 per cent of Fitch Core Capital (FCC) at the end of the first half of 2022.

The rating agency said, “Oil and gas exposure (30 per cent of net loans at end-2021) is higher than the banking-system average and weighted toward higher-risk upstream and services sub-segments.

“Improved Asset Quality: FBN’s impaired loans (Stage 3 loans under IFRS 9) ratio has declined significantly to 5.6 per cent at the end of the first half of 2022 from a peak of 25 per cent at end-2018 as a result of sizeable write-offs, successful restructurings and recoveries and, more recently, the flattering effect of strong loan growth.”

It also said that FBNH delivers healthy profitability, as indicated by an operating return on risk-weighted assets (RWAs) averaging 2.6 per cent over the past four years (four per cent in 2021, underpinned by large recoveries on a previously written-off loan).

Fitch noted that earnings benefit from a low cost of funding and strong non-interest income but were constrained by a high cost-to-income ratio which was 74 per cent in 2021 and significant loan impairment charges (LICs) in recent years.

It also said that improved capitalisation, creditworthiness, more stable funding profile were key positive indices considered in its assessment.

“The rating upgrade of FirstBank and its holding company could, however, be affected by a sovereign downgrade as the bank ‘does not meet Fitch’s criteria to be rated above the sovereign.’

“An increase in the impaired loan ratio to significantly above 10 per cent that results in markedly weaker performance and very thin buffers over regulatory capital requirements or a sharp decline in the FCC ratio without clear prospects to restore capital would pressure the VRs,” Fitch said.

Money market

LCCI advocates discipline, export to sustain Naira appreciation

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LCCI advocates discipline, export to sustain Naira appreciationThe Lagos Chamber of Commerce and Industry (LCCI) has emphasised the importance of maintaining discipline in the foreign exchange market to sustain the steady appreciation of the Naira.

The President and Chairman of the Council of LCCI, Mr Gabriel Idahosa, made the call in an interview with newsmen on Wednesday in Lagos.

Idahosa praised the efforts of the Central Bank of Nigeria in imposing discipline, attributing the recent Naira appreciation to curbing speculative activities.

“On the monetary side, the CBN is doing it. The primary efforts should continue to impose discipline in the foreign currency market.

“The abuses in the foreign currency market were prevalent and most of the fall in the value of the Naira in the last six months is not because there was any sudden calamity in the Nigerian economy.

“It was primarily because of very reckless speculations, that people were just speculating in the dollar, they had nothing to export, nothing to import, they were just buying the dollar for speculative reasons.

“And once the Central Bank started to impose discipline in the foreign currency market, we saw the value of the Naira rising very quickly by stopping speculation,” he said.

According to him, the strategies of the Central Bank, now, are designed to achieve a sustained discipline in the foreign currency market.

Idahosa highlighted the need to continue reducing the number of Bureau de Change operators, stressing that many operated without contributing to international trade.

He applauded the Central Bank’s move to enforce documentation and identification of buyers and sellers at BDCs, aiming to deter reckless speculation and curb illicit financial flows.

On the fiscal side, Idahosa urged President Bola Tinubu to prioritise a nationwide export drive, citing it as the key to bolstering the Naira and providing essential foreign exchange.

He emphasised the importance of fostering a culture of export among Nigerians across all scales of enterprise to reduce reliance on imports and strengthen the country’s economic resilience.

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Foreign reserves decline to $32.29bn

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The foreign reserve has depleted to $32.29 billion, which is a six-year low in the Central Bank’s course to save the naira.

This is the lowest level the reserves have been since September 25, 2017, when it was $32.28 billion.

The country’s foreign reserves declined by 6.2 percent, losing $2.6 billion since March 18, when the naira started its rebound from record-low levels against the dollar to $32.29 billion as of Monday, based on the latest available data from the CBN.

At the beginning of the month, the reserve was at $33.57 billion, then further dipped to $32.6 billion by April 12.

This comes as the CBN has attempted to save the naira through various interventions such as raising interest rates to 24.75 percent and managing foreign exchange trades.

It stepped up its intervention in the FX market with sales at both the official market and to BDC operators who sell dollars on the streets.

The apex bank, which sells $10,000 to each BDC every week, mandated them to only sell at a spread of 1.5 percent, which comes to N1,117 per US dollar.

The rate sold by the BDCs has set a defacto floor for the naira in the black market since the apex bank resumed sales to them in February.

Also, last month the CBN said it had cleared a backlog of $7 billion since the beginning of the year. That was built over the years as the central bank pegged its currency against the dollar, leading to a scarcity of foreign currency that deterred foreign portfolio investment. However, it’s unclear how much dollar debt the CBN retains on its books.

Akpan Ekpo, a professor of economics and public policy, said the CBN’s managed float system in which it is trying to ensure supply and curtail demand is not sustainable in the long term.

He said the CBN needs to be careful with how it depletes the foreign reserves as its main source is oil revenue.

“We need to manufacture non-oil goods and services, export them, and get foreign exchange and not depend on oil income,” he said.

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CBN expresses commitment to harnessing digital technologies

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The Central Bank of Nigeria says it is committed to harnessing the power of digital technologies to enhance financial inclusion.

CBN Governor, Mr Yemi Cardoso said this on Tuesday in Abuja, during a strategic institutions tour by participants of Senior Executive Course 46 of the National Institute of Policy and Strategic Studies (NIPSS).

Cardoso, who was represented by Dr Bala Bello, Deputy Governor, Corporate Services, said that digital technologies would also boost productivity and create an enabling environment for innovation and entrepreneurship to thrive.

According to him, the apex bank has already deployed robust digital technologies in driving most of its processes towards achieving optimal performance.

He said that NIPSS, as a foremost national policy think-tank, had made invaluable contributions to the socio-political and macroeconomic development of Nigeria.

“We are, therefore, not surprised at the apt and relevant choice of your research theme.

“The CBN and NIPSS have had a long-standing and robust working relationship since the establishment of the institute. This has culminated into positive mutual benefits for the two institutions.

“The CBN, on the one hand, has provided infrastructural support to the institute through construction of an auditorium and a hostel, in addition to the provision of technical support.

“On the other hand, NIPSS has supported the technical capacity of the CBN through the training of some personnel both at senior executive course level and intermediate course cadre,” he said.

The Director-General of NIPSS, Prof. Ayo Omotayo, said that the study visiting would be representing the institute in getting information from operators of the apex bank on the relevance of digital technology to developing jobs for Nigerian youths.

According to Omotayo, a lot of progress has been made globally in using digital systems to run the economy.

“The more of our activities that we can put in digital format, the more we get the opportunity of providing employment access to a whole lot of the 120 million active Nigerians.

“We at NIPSS always knock at the frontiers of knowledge, checking what is going to happen in the immediate future.

“We are working towards a system where we believe that almost every service can be delivered digitally,” he said.

The Acting Director, Monetary Policy Department of the CBN, Dr Lafi Bala Keffi, commended the NIPSS study group for its interest in the apex bank.

She urged the participants to explore the time-tested culture of NIPSS, which is to diagnose national, profer practical solutions and recommend ways of making such solutions realisable.

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