Fitch Ratings has downgraded Nigeria’s Bank of Industry Limited’s (BOI) Long-Term Issuer Default Rating (IDR) to ‘B+’ from ‘BB-‘ and Support Rating to ‘4’ from ‘3’ following the downgrade of the Nigerian sovereign rating to ‘B+’ from ‘BB-‘. The Outlook is Stable, in line with the Outlook on the sovereign. A full list of rating actions is available at the end of this rating action commentary.
KEY RATING DRIVERS
IDRS, SUPPORT RATING, SUPPORT RATING FLOOR AND NATIONAL RATINGS
The state-owned development bank BOI’s ratings are driven by and equalised with Nigeria’s sovereign ratings. The Stable Outlook on BOI’s Long-Term IDR reflects the Stable Outlook on Nigeria’s sovereign rating.
BOI’s Long-Term IDR is at the bank’s Support Rating Floor (SRF) of ‘B+’, 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 ‘B+’. Although the sovereign’s ability has weakened, particularly in foreign currency, support would still be available to a limited extent, given BOI’s relative size.
We also believe that the state’s propensity to provide support remains high, reflecting the state’s 99.9% ownership, BOI’s policy role and the bank’s strategic importance to economic and industrial development. BOI’s funding is long-term and almost exclusively sourced from the Central Bank of Nigeria (CBN). BOI’s regulatory Basel II total capital adequacy ratio stood at a healthy 47.3% at end-March 2016 and its impaired loan ratio was 2.6%.
BOI’s National Ratings reflect the bank’s creditworthiness relative to the best credits in Nigeria.
BOI is 94.8% owned by the Ministry of Finance and 5.1% by CBN. Fitch views BOI as a policy bank, reflecting its key role in the state’s structural and economic reforms, particularly in developing the non-oil sector. The propensity to support is underpinned by the bank’s funding profile, as it is majority-funded by a NGN535bn zero coupon bond due in 2025 issued to the CBN. BOI is diversifying its funding but Fitch does not view this as a reason for any reduction in the likelihood of state support.
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 financing start-ups, existing businesses and the rehabilitation of ailing businesses and industries. The bank operates from 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 are sensitive to a weakening in the ability of Nigeria to support the bank, which would be indicated by a further downgrade of Nigeria’s sovereign rating. The ratings could also be downgraded if Fitch’s view of the state’s willingness to support the bank changes adversely, for example in the event of a material change in the government ownership or a change in the bank’s policy role.
BOI’s National Ratings are sensitive to a 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 IDR downgraded to ‘B+’ from, ‘BB-‘;Outlook Stable
Short-Term IDR affirmed at ‘B’
National Long-Term rating affirmed at ‘AA+(nga)’
National Short-Term ratings affirmed at ‘F1+(nga)’
Support Rating downgraded to ‘4’ from ‘3’
Support Rating Floor revised to ‘B+’ from ‘BB-‘