MON 27 SEPT, 2021-theGBJournal- Fitch Ratings last week published their ratings of top Nigerian Banks, reflecting the country’s stabilising operating conditions, and forecasting a 1.9% GDP growth in 2021, following a 1.8% decline in 2020.
The global ratings agency’s country baseline scenario is that business volumes and earnings should continue to rebound in 2021, while the rally in oil prices is also a positive factor.
‘’Nevertheless, downside risks linger, given inherently volatile market conditions, with banks still exposed to foreign-currency (FC) shortages, potential further currency devaluation, rising inflation and regulatory intervention by the Central Bank of Nigeria (CBN),’’ Fitch said.
Aside FBN Holdings, Fitch assigned stable outlook for the rated banks. The banks rated include UBA Plc, Access Bank Plc, Bank of Nigeria Plc, Fidelity Bank PLC, Stanbic IBTC Holdings, Guaranty Trust Bank, Bank of Industry and Zenith Bank.
The Banks Ratings;
Union Bank of Nigeria
The ratings agency affirmed Union Bank of Nigeria PLC’s (Union) Long-Term Issuer Default Rating (IDR) at ‘B-‘ with a Stable Outlook. The National Long-Term Rating has been upgraded to ‘BBB(nga)’ from ‘BBB-(nga)’.
The upgrade of the National Long-Term Rating reflects the bank’s improved creditworthiness relative to other issuers in Nigeria.
‘’The Stable Outlook reflects Fitch’s view that risks to Union’s credit profile are captured in the current rating, with sufficient headroom under our base case to absorb the fallout from operating environment pressures.’’
Fitch said Union has a well-established brand and nationwide presence and operates across multiple customer segments, but lacks competitive advantages compared with larger Nigerian banks due to its modest franchise (market share of around 5% of sector assets).
It also noted that the bank’s Aasset quality is weighed down by large credit concentrations and high Stage 2 loans (end-1H21: 20.5% of gross loans), on which reserves are only 7.4%, and Union’s Stage 3 loans ratio underperforms peers – rising slightly in 1H21 to 8.7%, down from 24.0% at end-2018 – while total reserves coverage (65%) is relatively low reflecting reliance on collateral.
Union’s Fitch Core Capital (FCC) ratio fell to 14.5% at end-1H21 (end-2020: 16%), underperforming peers. This was mainly due to loan growth, which we expect to continue in 2H21, but largely be offset by internal capital generation.
Fidelity Bank PLC
Fitch affirmed Fidelity Bank PLC’s Long-Term Issuer Default Rating (IDR) at ‘B-‘with a Stable Outlook. The National Long-Term Rating has been upgraded to ‘BBB+(nga)’ from ‘BBB(nga)’, reflecting the bank’s increased creditworthiness relative to other issuers in Nigeria.
The Stable Outlook reflects Fitch’s view that risks to Fidelity’s credit profile are captured by the current rating, with sufficient headroom under our base case to absorb the fallout from operating environment pressures.
Fidelity is the sixth-largest bank in Nigeria, representing 6% of banking system assets at end-2020. Single-borrower concentration is high, with the 20-largest customer loans representing 253% of Fitch Core Capital (FCC) at end-1H21. Exposure to the oil and gas sector is also high, representing 26% of gross loans and 160% of FCC, and largely concentrated within the upstream and services segments, posing a significant risk to asset quality in the event of a prolonged period of low oil prices and production cuts.
Stanbic IBTC Holdings PLC
Fitch Ratings has affirmed the National Long-Term Ratings of Nigeria-based Stanbic IBTC Holdings PLC (Stanbic IBTC) and its 99.9% owned subsidiary, Stanbic IBTC Bank PLC (Stanbic IBTC Bank), at ‘AAA(nga)’.
The ratings of Stanbic IBTC and Stanbic IBTC Bank are based on potential support from their ultimate parent, South Africa’s Standard Bank Group Limited (SBG), which owns 67% of Stanbic IBTC.
The ratings reflect SBG’s ability and willingness to support Stanbic IBTC and Stanbic IBTC Bank, if required. SBG’s ability to support considers its ‘BB-‘ Long-Term Issuer Default Rating (IDR), but is constrained by Nigeria’s Country Ceiling of ‘B’.
Access Bank Plc
Access Bank Plc’s Long-Term Issuer Default Rating (IDR) is affirmed at ‘B’ and Viability Rating (VR) at ‘b’. The Outlook is Stable.
The Stable Outlook reflects Fitch’s view that risks to Access’s credit profile are captured at the current rating level, with sufficient headroom, under our base case, to absorb the fallout from operating environment pressures.
Fitch has also upgraded Access’ Short-term National Rating to ‘F1+(nga)’ reflecting the bank’s solid funding and liquidity profile, which is a rating strength.
Access is the largest banking group in Nigeria by assets at end-1H21. Its asset quality has continued to hold up despite operating-environment pressures.
‘’Our asset-quality assessment considers substantial non-loan assets, largely comprising cash balances at the Central Bank of Nigeria (CBN; mainly in the form of restricted deposits) and investments in Nigerian government securities (B/Stable).’’
Guaranty Trust Bank Limited
Fitch Ratings affirmed Guaranty Trust Bank Limited’s (GTB) Long-Term Issuer Default Rating (IDR) at ‘B’ and Viability Rating (VR) at ‘b’. The Outlook is Stable.
The Stable Outlook reflects Fitch’s view that risks to GTB’s credit profile are captured at the current rating level, with sufficient headroom, under our base case, to absorb the fallout from operating- environment pressures.
GTB is the fifth-largest banking group in Nigeria by asset at end-1H21. Its loan book forms a small proportion of total assets (33% at end-1H21) but is concentrated by borrower and sector. GTB’s impaired (stage 3 under IFRS 9) loan ratio fell to 6% at end-1H21 from 6.4% at end-2020, due to recoveries and write-offs.
Fitch said they expect only modest asset-quality deterioration over the next 18 months, notwithstanding its material oil and gas exposure and significant Stage 2 loans, given higher oil prices and sound collateralisation.
FBN Holdings Plc (FBNH)
FBN Holdings Plc (FBNH) outlooks are negative and its Long-Term Issuer Default Ratings (IDRs) and its primary operating subsidiary, First Bank of Nigeria Ltd (FBN), affirmed at ‘B-‘.
Fitch noted that the Negative Outlooks primarily reflect corporate governance weaknesses highlighted by the Central Bank of Nigeria (CBN) in April 2021, pertaining to long-standing and problematic related-party exposures at FBNH.
‘’We understand that these issues have not yet fully been resolved by FBNH, which creates uncertainty surrounding further remedial actions that CBN may impose and puts pressure on the ratings.’’
In Fitch’s view, capitalisation is a rating weakness. FBN’s (bank-solo) total capital adequacy ratio of 15.7% at end-1H21 (excluding profit for the period), provided only a 70bp buffer above its minimum regulatory requirement. Capitalisation metrics remain vulnerable to asset quality risks, given fairly high unreserved impaired loans (equal to 15% of FCC) and the bank’s sizeable stage 2 portfolio, on which provisions are very low.
Bank of Industry
Fitch Affirms Nigeria-based Bank of Industry Limited’s (BOI) at ‘B’/Stable; upgrades National Rating to ‘AAA(nga)’, reflecting their view of an increased likelihood of support from the Nigerian authorities for the bank’s local currency obligations.
BOI is Nigeria’s primary development bank, with the mandate of financing the country’s emerging industrial sector. The bank plays an important role in supporting government policies and in providing counter-cyclical loans since the onset of the economic crisis resulting from the coronavirus pandemic.
BOI’s funding has increased substantially since March 2020, as the bank secured two large syndicated loan facilities of EUR1 billion and USD1 billion from syndicates of commercial banks and multilateral development banks, which are fully guaranteed by the CBN.
The proceeds of the borrowings are swapped with the CBN, boosting its foreign-exchange (FX) reserves and providing BOI with Nigerian naira to support its developmental activities. BOI’s management has indicated that this fundraising will serve to expand the bank’s lending to priority sectors.
Fitch noted it might take BOI substantial time to channel the recently attracted funding to borrowers and as of end-1H21, 48% of BOI’s total assets were kept in liquid government bonds and cash, compared with 20% at end-2019.
United Bank for Africa Plc
Fitch Affirms United Bank for Africa Plc (UBA) at ‘B’ and Outlook Stable. UBA’s National Short-Term IDR has also been upgraded to ‘F1+(nga)’ from ‘F1(nga)’, reflecting the bank’s continuing solid funding and liquidity profile, which is a rating strength.
The Stable Outlook reflects Fitch’s view that risks to UBA’s credit profile are captured at the current rating level, with sufficient headroom, under our base case, to absorb the fallout from operating-environment pressures.
The ratings also reflect UBA’s pan-African franchise with subsidiaries in 20 countries outside of Nigeria (with 50% of net income and 35% of assets at end-1H21 coming from the rest of Africa). We believe UBA’s ability to capitalise on business and trade flows and attract deposits across the continent is a competitive advantage relative to the bank’s peer group.
UBA is the fourth-largest banking group in Nigeria, representing 15% of domestic banking-system assets at end-2020.
Zenith Bank Plc’s
Zenith Bank Plc’s Long-Term Issuer Default Rating (IDR) is affirmed at ‘B’ with a Stable Outlook.
The Stable Outlook reflects Fitch’s view that risks to Zenith’s credit profile are captured at the current rating level, with sufficient headroom, under our base case, to absorb the fallout from operating- environment pressures.
Zenith is the second-largest banking group in Nigeria, representing 16% of domestic banking-system assets at end-2020. It has a strong franchise in corporate banking and the centrepiece of its strategy is to deepen retail-market penetration through digital platforms.
Single-borrower concentration is moderate, with the 20-largest customer loans representing 96% of Fitch Core Capital (FCC) at end-1H21. Its oil and gas exposure is material, representing 23% of gross loans and 62% of FCC at end-1H21, and is concentrated on the upstream segment, posing a significant risk to asset quality in the event of a prolonged period of low oil prices and production cuts. Restructured loans (a high 24% of gross loans at end-1H21) are concentrated in the upstream oil and gas sector.
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