Credit Worthiness: Fitch ratings predicts increase in Ecobank’s rating

Leading provider of credit ratings, commentary and research for global capital markets, Fitch Ratings has predicted an increase in Ecobank Nigeria Limited’s National Ratings.

The organization noted the increass in ratings will result from the Bank strengthening its creditworthiness relative to other Nigerian issuers.

According to the international rating agency, it expects to resolve the Rating Watch Negative of ENG “within the next six months when exchange-rate volatility may recede, the impact on regulatory capital ratios and common equity double leverage is clear, and the scale of the second-order economic effects of the devaluation on loan quality becomes evident.”

A statement said that Fitch, in its recent report, noted that factors that could, individually or collectively, lead to positive rating action and upgrade included ENG’s continued compliance with its minimum CAR requirement, following the devaluation, with sufficient buffers to accommodate increase in credit concentration and loan-quality risks.

It noted that an upgrade of ENG’s VR and Long-Term IDR would require a sovereign upgrade and an improvement in operating conditions in conjunction with a strengthened financial profile.

Fitch Ratings had placed Ecobank Transnational Incorporated’s and Ecobank Nigeria Limited’s Viability Ratings of ‘b-‘ and Long-Term Issuer Default Ratings of ‘B-‘ on Rating Watch Negative, following the sharp devaluation of the Nigerian naira.

Fitch indicated that the current RWN reflected the risk of ENG breaching its  minimum capital requirements due to the direct effect of the devaluation.

“For ENG, it also reflects increased risks to capital from large foreign-currency problem loans (Stage 2 and Stage 3 under IFRS 9) that have been inflated by devaluation, which may necessitate greater prudential provisions and exert further pressure on the bank’s total capital adequacy ratio, in addition to broader loan quality risks stemming from the devaluation,”  it stated.