[Nigeria] Fitch Rates Bank of Industry at ‘BB-‘; Outlook Negative and ‘AA+ (NGA)
Fitch Ratings-London-25 June 2015: Fitch Ratings has assigned Nigeria-based Bank of Industry Limited (BOI) a Long-term Issuer Default Rating (IDR) of ‘BB-‘ with a Negative Outlook and a Short-term IDR of ‘B’. Fitch has also assigned BOI a National Long-term rating of ‘AA+(nga)’ and National Short-term rating of ‘F1+(nga)’.A full list of rating actions is at the end of this rating action commentary.
KEY RATING DRIVERS
IDRS, SUPPORT RATING, SUPPORT RATING FLOOR AND NATIONAL RATINGS
BOI’s ratings are driven by and equalised with Nigeria’s sovereign ratings (BB-/Negative/B). They reflect Fitch’s view that if required, there is a moderate probability, that the Nigerian authorities would provide extraordinary support to BOI. The moderate probability of support is reflected in BOI’s Support Rating (SR) of ‘3’. The Negative Outlook on BOI’s Long-term IDRs reflects the Negative Outlook on the sovereign rating.
BOI’s Long-term IDR is at its Support Rating Floor (SRF) of ‘BB-‘, which considers Nigeria’s ability to provide such support in a timely manner as and when required, as indicated by Nigeria’s Long-term foreign currency IDR of ‘BB-‘. We also believe that its propensity to provide such support is high, reflecting its 99.9% ownership, BOI’s policy role and the bank’s strategic importance to economic and industrial development. BOI is also highly reliant on the Central Bank of Nigeria (CBN) for its funds.
The National Ratings reflect the bank’s creditworthiness relative to the best credits in Nigeria.
BOI was established in 2001 by the Nigerian government, and is 94.8% owned by the Ministry of Finance and 5.1% by CBN. BOI is Nigeria’s leading development finance institution with the sole mandate of financing local industries. We consider BOI a policy bank given its ownership and its key role in the state’s structural and economic reforms, particularly in developing the non-oil sector. The bank is majority funded by zero coupon, 25-year subordinated debt issued to CBN in 2013, which counts towards Tier 2 regulatory capital. Prior to that the bank was funded by a NGN100bn loan from the state (the Debt Management Office), which was converted to equity in favour of the Ministry of Finance.
The bank provides concessional financing to SMEs and larger corporates in specific industries in the form of direct loans and on-lending to commercial banks. This includes lending to start-ups, existing businesses and the rehabilitation of ailing businesses and industries. The bank has 14 offices across the country. BOI also acts as a fund manager for state governments, the federal government and legacy funds of high net worth individuals. Some of the funds are intervention funds aimed at supporting specific industries. BOI receives a fee for managing and advising the funds. BOI does not have a special charter and is a limited liability company regulated by CBN as a development finance institution.
RATING SENSITIVITIES
IDRS, SUPPORT RATING, SUPPORT RATING FLOOR AND NATIONAL RATINGS
BOI’s IDRs, SR and SRF could be sensitive to any weakening of the ability or willingness of Nigeria to support BOI, the former being reflected by Nigeria’s sovereign rating. The ratings could also be downgraded in the event of material change in the government ownership and/or any change in the bank’s policy role. An upgrade of the Nigerian sovereign would not necessarily lead to an upgrade of BOIs IDRs.
BOI’s National Ratings are sensitive to any change in Fitch’s opinion of BOI’s creditworthiness relative to the best credits in Nigeria
The rating actions are as follows:
Bank of Industry
Long-term foreign currency IDR assigned at ‘BB-‘/Outlook Negative
Short-term foreign currency IDR assigned at ‘B’
Support Rating assigned at ‘3’
Support Rating Floor assigned at ‘BB-‘
National Long-term Rating assigned at ‘AA+(nga)’
National Short-term Rating assigned at ‘F1+(nga)’