Fitch revises outlook on 4 Banks to negative on sovereign action

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By Kayode Tokede

Fitch Ratings has revised the outlooks on the Long-Term Issuer Default Ratings (IDR) of four  banks, Zenith Bank plc , Guaranty Trust Bank plc (GTBank), United Bank for Africa plc (UBA) and Bank of Industry Limited (BOI), to negative from stable and affirmed their IDRs at ‘B+’.

The agency has also affirmed the ‘AAA(nga)’ National Ratings of Stanbic IBTC Holdings PLC and Stanbic IBTC Bank Plc.

The rating actions follow the revision of the Outlook on Nigeria’s Long-Term IDRs to Negative from Stable on  December 19,  2019.

The global rating agency in its key rating drivers stated that, “Zenith, GTB and UBA are the highest-rated commercial banks in Nigeria (on the international scale).

“The ratings are driven by their standalone creditworthiness, as defined by their respective Viability Ratings (VRs). In Fitch’s view, the VRs are capped by the Nigerian sovereign (B+/Negative) rating, given the concentration of the banks’ activities within Nigeria, including lending to the real-economy sector, and the banks’ linkage to the sovereign credit profile through significant exposure to government securities.”

Fitch expected the banks’ credit profiles to be negatively affected in the event of a sovereign downgrade, particularly if this is accompanied by sharp naira devaluation.

They expressed that  ”In this event, our assessment is that capital and, potentially, asset-quality metrics would be negatively impacted. Accordingly, Fitch has revised the Outlook on the Long-Term IDRs of these three banks to Negative.

“BOI is a state-owned development bank and its Long-Term IDR is equalised with the Nigerian sovereign rating and driven by its Support Rating Floor (SRF) of ‘B+’, which reflects a limited probability of support from the state if required. The Negative Outlook on BOI mirrors that on the Nigerian sovereign.

“Our view of support considers BOI’s 99.9per cent state ownership, policy role and strategic importance to Nigeria’s economic and industrial development.

“Support Ratings And Support Rating Floors, “We have affirmed the Support Ratings and Support Rating Floors of Zenith, GTB, UBA and BOI given that our assessment of sovereign support remains unchanged.

On national ratings, Fitch Rating said, “The National Ratings reflect the issuers’ creditworthiness relative to other Nigerian issuers. The National Ratings of all banks have been affirmed, given that their creditworthiness relative to other issuers in Nigeria is not expected to change as a result of the rating action on the Nigerian sovereign.

“The Negative Outlook on Zenith, GTBank, UBA and BOI reflects our view that a sovereign downgrade would likely be accompanied by a downgrade of these issuers’ Long-Term IDRs. The ratings of Zenith, GTB and UBA are also sensitive to deterioration in operating environment and its impacts on asset quality and capitalisation.

“BOI’s IDRs, Support Rating and SRF are sensitive to changes in Nigeria’s sovereign ratings. The bank’s ratings are also sensitive to a reduced propensity of the authorities to support the bank but this is not our base case.

“The National Ratings are sensitive to a change in Fitch’s opinion of the banks’ creditworthiness relative to other issuers in Nigeria.

Stanbic IBTC Holdings PLC’s and Stanbic IBTC Bank PLC’s National Ratings are driven by potential support from ultimate parent, Standard Bank Group.

The report added that, the highest level of environmental, social and governance (ESG) credit relevance for BOI, GTBank, UBA and Zenith bank, is a score of 3.

“This means ESG issues are credit-neutral or have only a minimal impact on the entities, either due to their nature of to the way in which they are being managed by the entities,” the report released on Sunday added.