Fitch upgrades BoI’s national rating to AAA

Fitch, a global credit rating agency, has upgraded the long-term rating of Bank of Industry(BoI) to ‘AAA(nga)’ from ‘AA+(nga).

BOI is Nigeria’s primary development bank, with the mandate of financing the country’s emerging industrial sector.

The ‘AAA’ is the highest rating possible that can be assigned to an issuer’s bonds by any of the major credit rating agencies.

The rating agency said the upgrade reflected that the linkage between the bank and the sovereign has strengthened, as evident in the significant size of the Central Bank of Nigeria (CBN) guarantees provided for BoI’s recent external funding.

“At present, all of BOI’s funding is either guaranteed or provided by the CBN or the Federal Government of Nigeria. In our view, this suggests that the sovereign propensity to provide extraordinary support to BOI in local currency has increased,” Fitch said.

It also affirmed the bank’s long-term issuer default rating (IDR) at ‘B’ with a stable outlook.

According to Fitch, “BOI’s long-term IDR and Support Rating Floor are equalised with the long-term IDR of the sovereign as we believe that the Nigerian authorities have a high propensity to support BOI.”

The agency explained that its assessment primarily reflected the bank’s important and clearly defined policy role in funding economic growth in Nigeria; it’s 99.9 per cent state ownership, split between the Ministry of Finance (94.8 percent) and the CBN (5.1 per cent); and the entirety of the bank’s wholesale funding being either provided or guaranteed by the Nigerian state.

It added that the government’s ability to support BOI is limited, indicated by Nigeria’s ‘B’ long-term SDR.

Fitch said, “BOI’s funding has increased substantially since March 2020, as the bank secured two large syndicated loan facilities of EUR1 billion and USD1 billion from syndicates of commercial banks and multilateral development banks, which are fully guaranteed by the CBN.”

“The proceeds of the borrowings are swapped with the CBN, boosting its foreign exchange (FX) reserves and providing BOI with Nigerian naira to support its developmental activities.

“BOI’s management has indicated that this fundraising will serve to expand the bank’s lending to priority sectors.

“It might take BOI substantial time to channel the recently attracted funding to borrowers and as of end-1H21, 48% of BOI’s total assets were kept in liquid government bonds and cash, compared with 20% at end-2019.”

Fitch said BOI maintains solid capitalisation and leverage metrics (end-1H21: equity-to-asset ratio of 19.4%), 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 (1H21: 18% annualised) driven by healthy net interest margins and, so far, moderate loan impairment charges,” the rating agency added.