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S&P affirms T&T’s First Citizens rating, outlook


Two days after T&T state-owned bank First Citizens launched its initial public offering (IPO) of 48,495,665 shares, the S&P rating service issued a report maintaining its BBB+ credit rating with a stable outlook on the financial institution.


In a report issued on Wednesday, S&P said: “The stable outlook on Trinidad and Tobago-based First Citizens Bank Ltd. (First Citizens) reflects our expectation that the bank will maintain its ‘very strong’ capitalization in the next two years. “We assume loan growth of close to 12 per cent in 2013, with non-performing assets (NPAs) of about 4.5 per cent.”

The rating service described the strengths of the bank as being its ownership by the Government and its very strong capitalization levels, while its weaknesses were high client concentration in the loan portfolio and strong competition from other financial institutions in the Caribbean. S&P said that it could raise its rating of First Citizens if the bank “significantly reduces its client and industry concentrations.” The rating could also be raised if the sovereign rating on T&T were increased, according to S&P. 

“On the other hand, if its risk-adjusted capital (RAC) falls to less than 15 per cent, we could downgrade the bank,” according to the rating agency. Although the report does not contain a figure for First Citizens’ risk-adjusted capital, the author of the report, S&P associate director of financial services, Ingrid Ortiz Machain, said in an e-mail to the Guardian: “Our risk-adjusted capital forecast for First Citizens for 2013 was between 18 per cent and 19 per cent. Without considering their recent IPO that could lead us to increase our forecast for the next quarters, but still we are assessing a more proxy figure.”

In the report, the rating agency said that it expected the risk-adjusted capital ratio of First Citizens to remain “very strong” during 2013 and 2014, which would be supported by the IPO. “The bank shows adequate profitability ratios and we expect the return on assets to remain near 2 per cent during the next two years, despite the fact that competition, excess liquidity, and weak economic conditions in the Caribbean have pressured these levels,” according to the rating agency. 

Analysing the bank’s business position, S&P described the management and strategy of First Citizens as “strong” and its business stability and diversity as “adequate.” S&P said: “The bank’s management focuses on cross-selling products and increasing market share in loans, credit cards, corporate banking, and asset-management services. It’s recent IPO placement supports the bank’s growth strategy. Also, the bank expanded its loan portfolio in the first half of fiscal year 2013 by 9 per cent, after the slowdown growth observed in 2011 of 3 per cent, while maintaining asset-quality indicators that compare well with its main peers.”

The rating agency assessed the bank’s risk position as ‘adequate’ based on its conservative underwriting standards, even though its growth rates are slightly higher than its main competitors. S&P said, however, that the bank’s client and industry concentration “partially offset” these positive factors as the financial institution’s portfolio is “concentrated in a limited number of corporations, most of which are vulnerable to energy price shifts.” The rating agency found that the bank’s funding was ‘average’ and its liquidity ‘adequate’ as customer deposits provide 70 per cent of First Citizens’ funding base and its loan-to-deposit ratio was 56 per cent as of March 31, 2013.