Moody’s has placed all long-term ratings and assessments of First Bank of Nigeria Limited (First Bank) on review for downgrade. The review will focus primarily on an assessment of evolving governance considerations at First Bank, specifically corporate governance developments.

The rating action follows the dissolution of First Bank's board by the Central Bank of Nigeria (CBN), the bank's primary regulator, on the 29 April 2021[1]. As a result of this action by the CBN, all the non-executive directors were removed while the executive management remained in place.

RATINGS RATIONALE

REMOVAL OF NON-EXECUTIVE BOARD MEMBERS HIGHLIGHTS GOVERNANCE SHORTCOMINGS

The review for possible downgrade reflects the rating agency's view that the removal of all non-executive directors of the bank's board by the regulator demonstrates corporate governance shortcomings and weaknesses in board oversight. The bank also needs to implement regulatory directives concerning the resolutions of loans to and shareholding in non-banking related parties, which reportedly had not be executed in the recent past.

Moody's notes that the outcomes of these developments are uncertain at this point, and the final and long-term governance, reputational and financial implications of the events for First Bank are also unclear.

While the bank's executive management team remained the same, the rating agency believes these developments could distract management's focus on implementing the bank's strategic plan and road to recovery. First Bank management's immediate key target was to reduce nonperforming loans (NPLs) to levels comparable with domestic peers. The rating agency recognises that, in the context of asset risks, the bank took steps to reduce its stock of problem loans, with its reported NPL ratio falling to 7.7% at year-end 2020 from 25.9% in 2018.

Moody's also notes the reputational risks associated with recent development as they could potentially influence investor confidence. In addition, the rating agency notes First Bank's relatively low proportion of provisions to its NPLs, at just about 40%, which puts its solvency at some risk in case higher loan-losses materialise than previously expected.