Fitch Ratings has upgraded First Bank of Nigeria Plc’s (First Bank) Viability Rating (VR) to ‘b’ from ‘b-‘ and Union Bank of Nigeria Plc’s (Union) VR to ‘ccc’ from ‘c’. At the same time, Fidelity Bank Plc’s (Fidelity) Long-term National Rating was upgraded to ‘BBB+(nga)’ from ‘BBB-(nga)’ and its National Short-term rating to ‘F2(nga)’ from ‘F3(nga)’.
The ratings of all other Fitch-rated Nigerian banks were affirmed. A full list of rating actions is at the end of this announcement.
The VRs of the Fitch-rated banks indicate highly speculative fundamental credit quality, with no VRs above the ‘b’ range. This is due to an extremely challenging operating environment, rapid underlying credit growth, concentrated credit risk and weak – albeit improving – corporate governance and transparency requirements.
In this context, the upgrade of First Bank’s VR follows the sale of significant loans to the Asset Management Corporation of Nigeria (AMCON) which has resulted in material improvement in the bank’s asset quality and reduced the concentrated problem loans that were constraining the VR at ‘b-‘. The VR also reflects First Bank’s dominant domestic franchise and acceptable levels of Fitch Core Capital.
The upgrade of Union’s VR acknowledges the restoration of the bank to solvency through the injection of capital from AMCON and a private equity consortium.
Fidelity’s National Ratings were upgraded due to the perceived level of support that Fidelity could expect from the authorities if required. Strong support was demonstrated across the sector during Nigeria’s banking crisis which Fitch expects would be repeated.
The IDRs and National Ratings of Access Bank Plc (Access), Diamond Bank Plc
(Diamond), Fidelity, First Bank, United Bank for Africa Plc (UBA) and Union are derived from Fitch’s perceived level of support from the authorities if required. These banks’ ratings are sensitive to a reduction in the level of support Fitch views would be forthcoming from the Nigerian authorities – either through indications of a reduced willingness to support or the ability to do so.
The latter would be signalled by a downgrade of Nigeria’s ‘BB-‘ sovereign rating. In Union’s case, the perceived level of support is enhanced by substantial AMCON ownership.
Stanbic IBTC Bank Plc’s (Stanbic IBTC) National Ratings are driven solely by potential support from its majority parent, Standard Bank Group (‘BBB+’/Negative). The ratings of Guaranty Trust Bank Plc (GTB) and Zenith Bank Plc (Zenith) are based on these banks’ individual strengths.
GTB and Zenith have the highest stand-alone VRs among the Nigerian banks at ‘b+’. The VRs on these banks reflect their strong domestic franchises, superior asset quality relative to peers and acceptable levels of capital.
The ratings also take into account their relatively resilient earnings throughout Nigeria’s banking crisis and GTB’s positive outlier cost/income ratio. Upward potential for these ratings is limited due to Nigeria’s challenging operating environment.
The VRs could be sensitive to a material weakening of levels of core capitalisation, possibly by loan growth exceeding retained earnings over time. If this were to occur, GTB’s Issuer Default Rating (IDR) could fall to its Support Rating Floor (SRF) of ‘B’ while Zenith’s IDR would not be affected due to its SRF at ‘B+’.
First Bank’s VR at ‘b’ takes account of its improved asset quality and reduced concentrations of problem loans following the sale of loans to AMCON. It also acknowledges the bank’s dominant domestic franchise and acceptable levels of capital. The VR could be positively sensitive to a track record of stable asset quality and maintenance of stable and/or improving Fitch Core Capital and leverage ratios. Downward pressure is limited in the short-term following significantly improved asset quality due to AMCON intervention.
Access’s VR of ‘b-‘ reflects earnings and asset quality that were sensitive to the Nigerian banking crisis and a historically developing franchise. In the medium-term, an upgrade could result from a track record of entrenching its expanded franchise following the acquisition of Intercontinental Bank Plc and stable asset quality through a cycle as well as stable or improving Fitch Core Capital and leverage ratios. Downward pressure is limited in the near-term.
Diamond and UBA’s ‘b-‘ VRs reflect their low Fitch Core Capital ratios and weak earnings through the banking crisis. The poor financial performance of these institutions was driven by weak operating efficiencies and high levels of impairment charges as a result of poor asset quality. Positive actions on these ratings would be sensitive to Fitch Core Capital and leverage ratios increasing significantly from current levels, possibly from demonstrating improved efficiency and underwriting. Downward pressure on these VRs in the short to medium term is limited following the sale of problem loans to AMCON during 2010 and 2011. This has materially improved the asset quality of these institutions.
Union’s VR of ‘ccc’ has limited downward pressure given the bank’s recent capital injection. Positive rating sensitivity could come from a track record of improving operating earnings and management’s ability to transition from restructuring a failed institution to running the bank as a going concern.
Stanbic IBTC’s ratings could only change if there were a material change in SBG’s willingness or ability to support the bank.
A Special Report will be available shortly at www.fitchratings.com giving more details on the banks discussed in this RAC. Credit updates and Full Rating Reports on each of the individual banks will follow this.
The rating actions are as follows:
Access
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 ‘F2(nga)’
Viability Rating: affirmed at ‘b-‘
Support Rating: affirmed at ‘4’
Support Rating Floor: affirmed at ‘B’
Diamond
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
National Long-term rating: upgraded to ‘BBB+(nga) from ‘BBB-(nga)’
National Short-term rating: upgraded to ‘F2(nga)’ from ‘F3(nga)’
First 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 ‘A+(nga)’
National Short-term rating: affirmed at ‘F1(nga)’
Viability Rating: upgraded to ‘b’ from ‘b-‘
Support Rating: affirmed at ‘4’
Support Rating Floor: affirmed at ‘B+’
GTB
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: affirmed at ‘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 Long-term Rating at ‘B+’, ‘RR4’ and Short-term Rating at ‘B’
Stanbic IBTC
National Long-term rating: affirmed at ‘AAA(nga)’
National Short-term rating: affirmed at ‘F1+(nga)’
UBA
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+’
Union
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: upgraded to ‘ccc’, from ‘c’
Support Rating: affirmed at ‘4’
Support Rating Floor: affirmed at ‘B+’
Zenith
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: affirmed at ‘B+’
