THUR, 23 JUNE, 2022-theGBJournal| Fitch Ratings has affirmed Ecobank Nigeria Limited’s (ENG) Long-Term Issuer Default Rating (IDR) at ‘B-‘ with a Stable Outlook. Fitch has also affirmed ENG’s Viability Rating (VR) at ‘b-‘ and National Long-Term Rating at ‘BBB(nga)’.
Fitch says ENG’s IDRs are driven by its standalone creditworthiness, as expressed by its VR. The VR reflects the concentration of its operations within Nigeria’s challenging operating environment, high credit concentrations, asset-quality weaknesses, modest profitability and weak capitalisation in the context of these risks. It also reflects a sizeable franchise and a healthy funding and liquidity profile.
‘’ENG’s National Long-Term Rating of ‘BBB(nga)’ is constrained by the bank’s high credit concentrations, asset-quality weaknesses, modest profitability and weak capitalisation in the context of these risks.’’
Fitch notes that ENG has moderate market shares of Nigeria’s banking sector assets (3.9% at end-2021). ‘’However, its franchise benefits from being a subsidiary of Ecobank Transnational Incorporated (ETI; B-/Stable), a large pan-African banking group with operations spanning 33 countries across Sub-Saharan Africa (SSA).’’
ENG’s impaired loans (Stage 3 loans under IFRS 9) ratio of 16% at end-2021 was higher than at peers but has improved in recent years and is expected to decline further in the short term. Stage 2 loans (24% of gross loans at end-2021) remain high but are not expected to become impaired.
In its assessment, Fitch says ENG has the weakest profitability of all Nigerian commercial banks covered by Fitch. Weak profitability is influenced by a narrow net interest margin (NIM) and high loan impairment charges (LICs) that have accompanied asset-quality issues in recent years. Fitch expects profitability to improve with rising interest rates and lower LICs that accompany receding asset-quality pressures.
ENG’s FCC ratio declined to 17.9% at end-2021 from 20.2% at end-2020, due to large other comprehensive income (OCI) losses on government securities. ENG’s total capital adequacy ratio (CAR; 11.5% at end-2021) declined by 10% in 2021, primarily as a result of ENG being required to book large prudential provisions against restructured and impaired loans. Capitalisation is modest in the context of high credit concentration and market risks.
Improving Deposit Structure: Reliance on term-deposit funding (38% of customer deposits at end-2021) is material but has decreased in recent years and is expected to decrease further. Deposit concentration is moderate. Liquidity coverage is healthy in both local currency and FC. ENG’s funding and liquidity profile benefits from ordinary FC liquidity support from ETI.
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