Fitch Expresses Concern over Nigeria’s Ability to Support Banks

Fitch Expresses Concern over Nigeria’s Ability to Support Banks

A global rating agency, Fitch Ratings has released its credit rating for three Nigerian tier-1 banks- United Bank for Africa (UBA), Access Bank and Guaranty Trust Bank Plc (GTBank).

The rating agency upgraded United Bank for Africa Plc’s (UBA) Long-Term Issuer Default Rating (IDR) to ‘B+’ from ‘B’, with a Stable outlook. Also, UBA’s Viability Rating (VR) was upgraded to ‘b+’ from ‘b’.

According to Fitch “UBA’s VR is constrained by the operating environment in Nigeria (B+/Stable) where the fragile economic recovery restrains banks’ growth prospects and asset quality.

The VR reflects UBA’s position as one of Nigeria’s largest banks, as well as its sound financial metrics and reasonable capital buffers. It controls an overall market share in Nigeria of approximately 10 percent and its well-established franchise is a rating strength”.

Fitch Ratings affirmed Access Bank Plc’s Long-Term Issuer Default Rating (IDR) at ‘B’ with a Stable Outlook. The Viability Rating (VR) is affirmed at ‘b’.

The agency noted that Access Bank’s VR reflects adequate profitability, although this is weaker than its other immediate peers. Relative earnings weakness reflects a higher cost structure and a modest retail franchise, resulting in a higher cost of funding than its peers.

According to Fitch, for Access Bank, “efforts to attract new retail depositors, particularly through digital channels continue. Liquidity ratios are sound, with cash holdings and government securities representing around 40 per cent of total assets.”

It was noted that foreign currency refinancing risks for Access Bank have eased with the bank issuing a five-year $300 million 10.5 per cent Eurobond in October 2016 (issued by Access Finance BV), which partly refinanced a $350 million 7.25 per cent Eurobond bond maturing in July 2017.

In the case of Guaranty Trust Bank, the agency revised the outlook on the bank’s Long-Term Issuer Default Rating (IDR) to Stable from Negative and affirmed the IDR at ‘B+’. Fitch also upgraded GTB’s Long-Term National Rating to ‘AA (nga) from ‘AA-(nga)’.

The rating noted that GTBank’s IDRs are driven by the bank’s intrinsic creditworthiness as defined by its Viability Rating (VR). GTBank’s VR is the highest assigned by Fitch to a Nigerian bank. The rating further noted that GTBank is one of Nigeria’s largest banks, controlling an overall domestic market share of approximately 11 per cent.

Fitch Ratings, which was founded in 1913, is a global provider of credit ratings and research. The company is part of the Fitch Group based in New York and is one of the big three credit rating agencies in the world.

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