Fitch Affirms Nigeria’s Intercontinental Bank at ‘B+’; Outlook StableReleased on 11 Oct 2008 Fitch Ratings has today affirmed Intercontinental Bank Plc’s (Intercontinental) ratings at Long-term Issuer Default rating (IDR) ‘B+’ with a Stable Outlook, Short-term IDR ‘B’, Individual ‘D’and Support ‘4’. The Support Rating Floor of ‘B+’ was also affirmed. At the same time, Fitch affirmed Intercontinental’s National Long-term rating at ‘A+(nga)’ and National Short-term rating at ‘F1(nga)’. The ratings reflect Intercontinental’s concentrated credit risk, rapid loan growth and Nigeria’s difficult operating environment. The ratings also consider the bank’s developing domestic franchise, strong record of earnings growth and adequate capitalisation. The Support rating and the Support Rating Floor reflect Fitch’s view that while support from the Central Bank of Nigeria (CBN) is possible, the authorities’ ability to do so may be limited, given Nigeria’s ‘BB-’ rating. The floor indicates the level below which Fitch would not lower its IDR in the absence of any changes to the assumptions underpinning the bank's Support rating. Fitch believes Intercontinental’s earnings will continue to grow strongly in the medium-term. However, this may be tempered by the bank’s ability to raise capital to support loan book growth and possible margin squeeze as competition intensifies within the Nigerian banking sector. Intercontinental’s loan book has grown strongly in recent years (60.6% during FY08) and is concentrated in the riskier commercial/ SME sector, as well as the manufacturing and oil and gas industries. Asset quality has been improving over the past four years, with a non-performing loan (NPL) ratio of 3.52% at FYE08 (FYE07: 4.39%) and a coverage ratio in excess of 100%. Excluding the impact of write-offs, Intercontinental’s absolute NPLs increased 70.3% during FY08. This should be seen in the context of its rapid loan growth,particularly to the commercial/ SME sector, an unseasoned loan book and a benign operating environment which may overstate the true level of asset quality. At FYE08 Fitch considered Intercontinental’s Tier 1 ratio of 24.85% (FYE07:36.20%) to be acceptable. However, the agency notes that this ratio has been significantly eroded over the past 12 months after strong on- and off-balance-sheet growth in risk-weighted assets. The agency considers that a fresh injection of capital will be required should the rapid rate of credit growth continue. Intercontinental is one of the largest banks in Nigeria by system assets and capitalisation. The bank commenced operations in February 1989 and provides universal banking services to multinationals, large domestic corporates, SMEs and individuals. |
