‘FG’s ability to support is limited’ — Fitch revises BOI’s rating to stable

Fitch has revised Bank of Industry’s (BOI) outlook to stable from negative and affirmed the bank’s long-term issuer default rating (IDR) at ‘B’.

The rating agency said the affirmation of BOI’s ‘B’ long and short-term IDRs, ‘B’ Support Rating Floor (SRF) and Support Rating of ‘4’ are a reflection of its view of potential support the bank could receive from the Nigerian authorities in case of need.

“Fitch has equalised BOI’s long-term IDR and SRF with the long-term IDR of the sovereign as it believes that the Nigerian authorities have a high propensity to support BOI,” it said.

“Our assessment primarily reflects (i) the bank’s important and clearly defined policy role in funding economic growth in Nigeria; (ii) its 99.9 percent state ownership, split between the ministry of finance (94.8 percent) and the Central Bank of Nigeria (CBN; 5.1 percent); and (iii) the entirety of the bank’s wholesale funding being either provided or guaranteed by the Nigerian state.”

It also said the government’s ability to support BOI is limited, indicated by Nigeria’s ‘B’ long-term IDR.

“BOI is Nigeria’s primary development bank, with the sole mandate of financing the country’s emerging industrial sector. The bank works closely with federal and state governments, and Nigerian banks, to meet its developmental objectives.

“BOI plays an important role in supporting important government policies and in providing counter-cyclical loans since the onset of the economic crisis resulting from the coronavirus pandemic.

“BOI has successfully managed to diversify its resources in recent years. In March 2020, the bank secured a EUR1 billion loan facility from a syndicate of commercial banks and multilateral development banks, which is fully guaranteed by the CBN. We expect that it will serve to expand BOI’s lending to priority sectors.

“BOI maintains a solid capital base (end-1H20: the equity-to-asset ratio of 24.4%), which is prudent for the bank’s exposure to the volatile operating environment.”

“Profitability is not a key objective; however, BOI continues to generate reasonable returns on equity driven by healthy net interest margins and, so far, moderate loan impairment charges.

“The affirmation of BOI’s Long-Term National Rating of ‘AA+(nga)’ reflects the bank’s unchanged creditworthiness relative to that of other credits in Nigeria.”