One of the world’s biggest credit ratings and research agencies, Fitch Ratings has released a credit rating on Nigerian banks. According to the ratings, two big Nigerian banks were downgraded while others were stable. The agency also attested to the viability of Nigerian banks, which is a positive backing for the Central Bank of Nigeria, which recently said “no Nigerian bank was in distress.”
According to the rating, WEMA bank, was affirmed the Long-term National Rating at (BBB-). This rating reflects the improvement in creditworthiness over time, relative to the best credits in Nigeria.
Although Fitch confirmed the viability of Nigerian banks, in its opinion, the banking industry will remain challenging considering volatile and low oil prices, continued disruptions in oil production and constraints regarding the FX liquidity. As a result of this, the industry could witness a rise in Non-Performing Loan (NPL) ratios, though strong capital ratios helped absorb the one-off negative FX shock. The FX devaluation could also impact consumer demand.
WEMA Bank’s rating
Wema’s Viability Rating (VR) is affirmed as a Stable Outlook. The Long-term Issuer Default Ratings (IDR) of Wema remains on Stable Outlook as its Viability Ratings (VR) drives the rating and there is no expectation of any material change in the Bank’s intrinsic creditworthiness.
“The rating is an affirmation of the Bank’s transformation and its positioning as one of the major players within the Nigerian Retail Banking Landscape,” said Segun Oloketuyi, the Managing Director of Wema Bank Plc.
What are the key drivers of the rating?
According to Fitch, the key rating drivers includes Issuer Default Ratings (IDRS), Support Ratings and Support Rating Floors (SRFS), Outlooks, Viability Ratings (VRs), National ratings, Senior Debt and Subordinated Debt Securities.
Issuer Default Ratings (IDRS), Support Ratings and Support Rating Floors (SRFS)
The IDRs of UBA, Access Bank (Access) and Wema Bank are driven by both their standalone strengths, reflected in their VRs, and by the likelihood of sovereign support, reflected in their SRFs. Their VRs and SRFs are at the same level.
The IDRs of FBN, Diamond Bank (Diamond), Fidelity Bank (Fidelity), Union Bank (Union) and First City Monument Bank (FCMB) are driven by their SRFs.
Following the downgrade of Nigeria’s sovereign ratings, Fitch has revised the SRFs for the systemically important banks, FBN, UBA, Zenith and GTB to ‘B’ from ‘B+’. As a result, both FBN’s and UBA’s IDRs have been downgraded to ‘B’ from ‘B+’. The IDRs of both Zenith and GTB are affirmed at ‘B+’ and are now driven by their respective VRs of ‘b+’.
The systemically important banks’ SRFs remain a mark below the sovereign rating, reflecting the sovereign’s weak foreign currency position. Fitch believes that the willingness of the Nigerian authorities to support domestic banks continues to be high (as demonstrated in the past). However, the state’s ability to provide support, particularly in foreign currency, is weaker due to falling oil prices eroding Nigeria’s foreign exchange reserves and foreign currency revenues.
Outlook
The Long-Term IDRs of Zenith, UBA, Access, GTB and Wema are on Stable Outlooks as Fitch expects their VRs to remain unchanged.
All other banks’ Long-Term IDRs are also on Stable Outlooks, reflecting the Stable Outlook on the sovereign rating as they are driven by the likelihood of state support.
The Negative Outlook on FBNH’s Long-Term IDR reflects pressure on its subsidiary FBN’s VR.
Viability Ratings (VRs)
The challenging and volatile operating environment in Nigeria and other key rating factors, particularly the banks’ financial profiles, constrain the VRs in the highly speculative ‘b’ range.
Since the last review in February 2016, bank asset quality has continued to weaken with average impaired loans (NPL) ratios of about 6.2% at end-March 2016. Losses in banks are increasing in the commercial, trading and manufacturing segments, mainly due to foreign currency depreciation and scarcity. NPLs in the oil sector are also rising, but most of the larger problem loans are being restructured. FBN’s high NPL ratio is mainly due to the bank’s exposure to the downstream oil sector. Sustained low oil prices and continuing production disruptions in the Niger Delta could cause industry NPL ratios to rise more dramatically.
Senior Debt and Subordinated Debt Securities
The senior debt ratings of Zenith, Access (issued via Access Finance BV), GTB (issued via GTB Finance BV), Diamond and Fidelity are affirmed in line with their respective Long-Term IDRs.
The subordinated debt ratings of FBN (issued via FBN Finance BV) and Access are rated a level below their respective VRs to reflect higher-than-average loss severity for subordinated relative to senior debt. No additional notches for non-performance risk have been applied. The subordinated debt ratings are affirmed, in line with the affirmation of the banks’ respective VRs.
Fitch rating actions on Nigerian Banks
- First Bank of Nigeria Ltd
Long-Term Foreign Currency IDR: downgraded to ‘B’ from ‘B+’; Outlook Stable
Short-Term Foreign currency IDR: affirmed at ‘B’
National Long-Term Rating: affirmed at ‘A+(nga)’
National Short-Term Rating: affirmed at ‘F1(nga)’
Viability Rating: affirmed at ‘b’
Support Rating: affirmed at ‘4’
Support Rating Floor: revised to ‘B’ from ‘B+’
FBN Finance Company BV’s subordinated notes: affirmed at ‘B-‘; Recovery Rating of ‘RR5’
- Zenith Bank Plc
Long-Term Foreign Currency IDR: affirmed at ‘B+’; Stable Outlook
Short-Term Foreign Currency IDR: affirmed at ‘B’
National Long-Term Rating: affirmed at ‘AA-(nga)’
National Short-Term Rating: affirmed at ‘F1+(nga)’
Viability Rating: affirmed at ‘b+’
Support Rating: affirmed at ‘4’
Support Rating Floor: revised to ‘B’ from ‘B+’
Global medium-term note programme affirmed at ‘B+’ /’RR4’/’B’
Senior unsecured notes: affirmed at ‘B+’/’RR4’
- United Bank for Africa
Long-Term Foreign Currency IDR: downgraded to ‘B’ from ‘B+’; Outlook Stable
Short-Term Foreign Currency IDR: affirmed at ‘B’
National Long-Term Rating: affirmed at ‘A+(nga)’
National Short-Term Rating: affirmed at ‘F1(nga)’
Viability Rating: affirmed at ‘b’
Support Rating: affirmed at ‘4’
Support Rating Floor: revised to ‘B’ from ‘B+’
- Access Bank Plc
Long-Term Foreign Currency IDR: affirmed at ‘B’; Stable Outlook
Short-Term Foreign Currency IDR: affirmed at ‘B’
National Long-Term Rating: affirmed at ‘A(nga)’
National Short-Term Rating: affirmed at ‘F1(nga)’
Viability Rating: affirmed at ‘b’
Support Rating: affirmed at ‘4’
Support Rating Floor: affirmed at ‘B’
Access Finance BV’s senior notes, guaranteed by Access Bank: affirmed at ‘B’/’RR4’
Subordinated notes: affirmed at ‘B-‘; Recovery Rating affirmed at ‘RR5’
- Guaranty Trust Bank PLC
Long-Term Foreign-Currency IDR: affirmed at ‘B+’; Outlook revised to Stable from Negative
Short-Term Foreign Currency IDR: affirmed at ‘B’
National Long-Term Rating: affirmed at ‘AA-(nga)’
National Short-Term Rating: affirmed at ‘F1+(nga)’
Viability Rating: affirmed at ‘b+’
Support Rating: affirmed at ‘4’
Support Rating Floor: revised to ‘B’ from ‘B+’
GTB Finance BV’s senior notes, guaranteed by Guaranty Trust Bank: affirmed at ‘B+’/’RR4’
GTB Finance BV’s global medium-term note programme, guaranteed by Guaranty Trust Bank: affirmed at ‘B+’/’RR4’/’B’
- Diamond Bank Plc
Long-Term Foreign-Currency IDR: affirmed at ‘B’; Stable Outlook
Short-Term Foreign Currency IDR: affirmed at ‘B’
National Long-Term Rating: affirmed at ‘BBB+(nga)’
National Short-Term Rating: affirmed at ‘F2(nga)’
Viability Rating: affirmed at ‘b-‘
Support Rating: affirmed at ‘4’
Support Rating Floor: affirmed at ‘B’
Senior unsecured notes: affirmed at ‘B’/’RR4’
- Union Bank
Long-Term Foreign-Currency IDR: affirmed at ‘B’; Stable Outlook
Short-Term Foreign Currency IDR: affirmed at ‘B’
National Long-Term Rating: affirmed at ‘BBB+(nga)’
National Short-Term Rating: affirmed at ‘F2(nga)’
Viability Rating: affirmed at ‘b-‘
Support Rating: affirmed at ‘4’
Support Rating Floor: affirmed at ‘B’
- Fidelity Bank PLC
Long-Term Foreign-Currency IDR: affirmed at ‘B’; Stable Outlook
Short-Term Foreign Currency IDR: affirmed at ‘B’
National Long-Term Rating: affirmed at ‘BBB+(nga)’
National Short-Term Rating: affirmed at ‘F2(nga)’
Viability Rating: affirmed at ‘b-‘
Support Rating: affirmed at ‘4’
Support Rating Floor: affirmed at ‘B’
Senior unsecured notes: affirmed at ‘B’/’RR4’
- First City Monument Bank Ltd.
Long-Term Foreign-Currency IDR: affirmed at ‘B’; Stable Outlook
Short-Term Foreign Currency IDR: affirmed at ‘B’
National Long-Term Rating: affirmed at ‘BBB+(nga)’
National Short-Term Rating: affirmed at ‘F2(nga)’
Viability Rating: affirmed at ‘b-‘
Support Rating: affirmed at ‘4’
Support Rating Floor: affirmed at ‘B’
- Stanbic IBTC Bank PLC
National Long-Term Rating: affirmed at ‘AAA(nga)’
National Short-Term Rating: affirmed at ‘F1+(nga)’
Stanbic IBTC Holdings PLC
National Long-Term Rating: affirmed at ‘AAA(nga)’
National Short-Term Rating: affirmed at ‘F1+(nga)’
- Wema Bank Plc
Long-Term Foreign-Currency IDR affirmed at ‘B-‘; Outlook Stable
Short-Term Foreign Currency IDR affirmed at ‘B’
Viability Rating affirmed at ‘b-‘
Support Rating affirmed at ‘5’
Support Rating Floor affirmed at ‘B-‘
National Long-term Rating affirmed at ‘BBB-(nga)’
National Short-term Rating affirmed at ‘F3(nga)’
