Fitch Rates Kaduna State ‘B’; Outlook Stable

Fitch Rates Kaduna State 'B'; Outlook Stable Fitch Ratings has assigned Kaduna state long-term foreign and local currency Issuer Default Ratings (IDR) of ‘B’ and a National Long-Term Rating of ‘A+(NGA)’.

The outlooks are stable. The ‘B’ ratings reflect Kaduna’s dwindling revenue prospects in line with declining statutory allocations from the federal government as a result of weak oil prices.

The ratings also reflect the region’s fast growing debt, although servicing requirements will be moderated by government subsidies, concessionary terms and a long grace period.

Fitch also took into account the state’s developing economy focused on agricultural activities and low per capita revenue by international standards.

Fitch Ratings Reviews Nigerian Banks’ Support Rating

Fitch Ratings, First Bank, seven energyFitch Ratings has revised down the Support Rating Floors (SRF) of 10 Nigerian banks to ‘no floor’ and downgraded nine banks’ Support Ratings (SR) to ‘5’ following a reassessment of potential sovereign support for the banking sector.

As a consequence, the long-term issuer default ratings of First Bank of Nigeria Limited, FBN Holdings PLC, Diamond Bank PLC, Fidelity Bank PLC, First City Monument Bank Limited and Union Bank of Nigeria PLC are downgraded to ‘B-‘ from ‘B’, in line with their stand-alone creditworthiness as defined by their viability ratings.

The agency has affirmed the long-term IDRS of Zenith Bank PLC, Guaranty Trust Bank PLC, Access Bank PLC, United Bank for Africa PLC, Wema Bank PLC and Bank of Industry (BOI).

The downgrade of the nine banks’ SRS and the revision of 10 banks’  SRFs to ‘no floor’ reflects Fitch’s view that senior creditors can no longer rely on receiving full and timely extraordinary support from the Nigerian sovereign if any of the banks become non-viable.

Nigerian Lawmakers Seek Sack Of CBN Governor Emefiele

House, CSOs, BillsSome lawmakers in the House of Representatives say the Governor of the Central Bank of Nigeria, Godwin Emefiele, should be sacked over his management of the country’s foreign exchange.

This is one position put forward as lawmakers considered the lingering scarcity of foreign exchange.

Addressing the House, a lawmaker said that the scarcity had continued to weaken the Naira against the dollar which now exchanges about 400  Naira to a dollar.

“The continuous weakening of the Naira against the dollar and other foreign currencies has affect the cost of goods and services production and has consequently made life more difficult for most Nigerians,” he said.

After deliberations on the issue, the House, however, resolved to have an ad-hoc committee investigate the Central Bank of Nigeria’s forex policies and recommend measures that would stabilise the Nigerian forex market.

The apex bank had on June 20 introduced interbank trading of foreign exchange to make the exchange market more flexible.

Despite the introduction of the policy, there is relative scarcity of forex, prompting the lawmakers to request that the Governor of the bank should be sacked.

The scarcity is propelled by demand for dollar needed by most importers, as the nation largely depends on imported goods.

It is a trend that the Nigerian government said some of its economic policies would address, reducing the preference of foreign products while patronage for made in Nigeria goods is promoted.

Highlights Of The Policy 

The CBN had released the highlights of the flexible foreign exchange market policy weeks after the Monetary Policy Committee announced its introduction.

After its meeting of May 24, the CBN said the policy would allow the bank retain a small portion of foreign exchange for critical transactions.

Key notes released stated that the market would operate as a single market structure via the interbank market and authorised dealers and that it would be purely an exchange rate market managed via Thompson Reuters platform.

Part of the key notes is that the CBN would participate via periodic intervention and would introduce primary dealers that deal with the CBN on a two way quote basis.

The primary dealers are also expected to deal with other players in the interbank market.

Other aspects of the key notes are that there shall be no pre-determined spreads on forex transactions and all forex purchases shall be transferable while 41 items shall remain inadmissible in the forex market for forex transactions.

The CBN will also offer long term forex futures and sales of forex forwards for end users must be trade-backed.

The non-deliverable OTC forex settled trades will help moderate volatility. The OTC settled forex feature shall be on non-standardised amounts, the apex bank said.

Another aspect of the key notes states that proceeds of forex shall be purchased by authorised dealers at the daily interbank rates.

The new police which the CBN said was a market-driven trading system, is expected to end the central bank’s 16 month fixed exchange rate policy.

After the highlights were released, Nigeria’s capital market made remarkable gains, with most stocks appreciating in price.

No Need To Panic

One of the leading global rating agencies, Fitch Ratings had welcomed the decision of the apex bank, saying that the shift to a more flexible foreign-exchange regime could aid Nigeria to adjust to lower oil prices and support growth.

It however, warned that the implementation of the new forex policy may present challenges if not properly managed.

Fitch explained that establishing the new framework’s credibility would be key to its effectiveness in attracting portfolio flows and Foreign Direct Investments (FDIs) to make up for lower oil export receipts.

Meanwhile, the CBN Governor, Godwin Emefiele, has reiterated that there was no need for businesses and investors to panic over the new forex policy, saying it will help address the imbalance in the economy.

Fitch Downgrades Seven Energy

Fitch Ratings, First Bank, seven energyFitch Ratings has downgraded Nigeria-based Seven Energy International Limited’s Issuer Default Rating (IDR) to ‘CC’ from ‘B-‘.

Seven Energy Finance Limited’s 10.25 percent 300 million dollar secured notes due in 2021 has also been downgraded to ‘C’ from ‘CCC’.

The IDR downgrade reflects the ratings agency re-assessment of the significant ongoing liquidity, security and execution risks that Seven Energy continues to face.

The company said that it has taken serious hits from the shutdowns of forcados and Qua Iboe terminals but they hope the force majeure declared by shell in February will be lifted before the end of this quarter.

The energy firm complained it did not lift any oil from its OMLs under strategic alliance agreement between seven energy and the Nigerian petroleum development company.

First Bank Reacts To Latest Fitch Ratings

Fitch Ratings, First BankThe Managing Director of First Bank of Nigeria, Mr Adesola Adeduntan, on Tuesday in Lagos, said that the lender’s business activities are integrated with the Nigerian economy in a way that the bank’s position could be impacted by Nigeria’s overall performance and ratings.

Mr Adeduntan was reacting to the latest Fitch ratings report that shaved First Bank’s issuer default rating to ‘B’ from B+, and FBN Holdings rating cut to BBB+ from ‘A’.

The new head of Nigeria’s largest lender says First Bank is proud to be associated with the Nigerian economy, but currently working to strengthen risk management processes and launch new digital channels, targeted at two million customers of the bank, in the first instance.

First Bank has an estimated ten million customers, which the lender plans to migrate onto new technology platforms, including off-site automated teller machines as well as agency banking.

Fitch ratings affirmed the issuer default ratings of eight Nigerian commercial banks and affirmed the viability ratings of all the banks.

However, the long-term foreign currency issuer default ratings of First Bank and UBA Group was downgraded to ‘B’ from ‘B+’ with a stable outlook.

The global rating agency downgraded the national long-term rating of FBN Holdings Plc to ‘BBB+.

Fitch ratings also cut the bank of industry’s long-term issuer default rating to ‘B+’ from ‘BB-‘ and support rating to ‘4’ from ‘3’.

The latest Fitch report expects Nigerian banks to remain profitable in 2016 despite slower asset growth and higher loan impairment charges.

Fitch Rates Kaduna State’s Economy Stable

Kaduna StateThe global economy rating agency, Fitch, has rated Kaduna’s long-term foreign and local currency Issuer Default Ratings (IDRs) at ‘B+’ and National Long-term rating at ‘A+(nga)’, noting that the outlooks are stable.

The agency based its rating of the State on various indicators including efforts by the State Government to increase Internally Generated Revenue (IGR) as well as provision of capital to Small and Medium Enterprises especially in the Agriculture Value Chain sector.

Fitch said that the key rating drivers are based on the expectations that Kaduna State would continue to achieve a healthy financial performance amid mild growth in local taxes and subsidies from the Federal Government.

The ratings also take into account the likely increase in financial debt due to the high infrastructure investment programme, which could potentially pressurise the budget, and the weak socio-economic environment.

According to the agency, “Federal subsidies, including VAT accounts for about 80% of the state’s revenues and Fitch believes these will grow towards NGN80bn by 2016, from NGN60bn in 2013.

Yearly debt service requirements of about NGN5bn will continue to be comfortably covered by the current balance in the medium term by 2x, supported by Kaduna’s robust cash position of about NGN20bn, which administration officials plan to stabilise.”

The agency also identified effort by the State Government to support and develop its agricultural sector, through collaboration with the local banking system, to provide small scale farmers with N1 billion pooled funds.

However, the agency said unemployment remains the biggest challenge to the State’s economy, noting that unemployment rate increased despite continued growth in agriculture and industrial projects, including operations in the re-opened Peugeot automobile company and the oil refinery, employing approximately 1,000 workers each.

Fitch Affirms Nigeria’s Robust Sovereign Rating

fitch ratingsTo demonstrate its view that the country is on the right economic trajectory despite many challenges, Fitch Ratings has affirmed it’s robust ‘BB-‘sovereign rating of Nigeria with a stable outlook.

It cited several current positive features of the economy to support its position.

Such features include improving stability in the economy after the suspension of CBN Governor, Sanusi Lamido Sanusi, the recent boost in the Excess Crude Account, rising oil production and improved efforts to tackle pipeline vandalism.

Below is the full statement:

Fitch Affirms Nigeria at ‘BB-‘; Outlook Stable

Fitch Ratings-London-10 April 2014: Fitch Ratings has affirmed Nigeria’s Long-term foreign and local currency Issuer Default Ratings (IDR) at ‘BB-‘ and ‘BB’, respectively. The Outlooks are Stable.

The issue ratings on Nigeria’s senior unsecured foreign and local currency bonds have also been affirmed at ‘BB-‘ and ‘BB’, respectively. The agency has also affirmed Nigeria’s Short-term foreign currency IDR at ‘B’ and Country Ceiling at ‘BB-‘.

KEY RATING DRIVERS 

The affirmation reflects the following key rating drivers:

The foreign exchange market and international reserves are stabilising after the shock of Central Bank (CBN) Governor Sanusi’s suspension on 20 February. Demand for FX in the official auction reverted to normal levels in March and CBN intervention in the inter-bank market has fallen away. The inter-bank Naira/US dollar rate has strengthened from its lows although it remains outside the upper limit of the 155 plus or minus 3% band.

Official reserves rose in March, helped by an increase in the ECA fiscal buffer (Excess Crude Account). Although reserves have fallen appreciably over the past year, they remain in line with ‘BB’ category peer medians at a Fitch projected 4.6 months current account payments (CXP) at end 2014, although weaker than similarly rated oil exporters (Angola and Gabon).

On 25 March the Monetary Policy Committee continued the gradual tightening of liquidity seen over the past year, with an increase in the private sector cash reserve requirement to 15%. Inflation fell to a new low of 7.7% in February, within the target range of 6%-9%. Fitch believes that as an institution, the CBN has been strengthened in recent years and should retain its autonomy over monetary and financial policy, notwithstanding the suspension of the former governor.

Oil production remains volatile but rose in 1Q14 to average 2.25mb/d, in line with the trailing 12-month average, and above the recent low of 2.1mb/d in November/December 2013. Improved production and increased efforts to tackle pipeline vandalism and oil theft may help explain the increase in the ECA in March. The issue of corruption in the oil sector and lack of transparency in oil flows has gained heightened prominence this year and the President has agreed to a forensic audit of the flows between state-owned oil company NNPC and the budget.

A tight budget has been approved. It assumes a conservative oil price of USD77.5/bl and a more realistic oil production assumption of 2.39mb/d. Although production shortfalls are likely to continue, allowing further drawing on the ECA, the authorities aim to increase the ECA this year. The budget envisages a fall in revenue and spending, although the latter will be achieved mainly through a more realistic assessment of capital spending capacity.

Other factors supportive of the affirmation include:

Nigeria’s low debt burden, which after the recent GDP re-basing is just 12.6% of GDP (general government) at end-2013, is well below medians throughout the rating scale. Fitch’s debt sustainability analysis shows the debt ratio would remain well below the ‘BB’ median in any plausible scenario.

Continued strong growth, which has averaged 6.8% over the past five years, led by non-oil growth of an average 7.7%. Revised national accounts show growth accelerated to 7.4% in 2013, with a 5.2% increase in the energy sector as gas production increased, notwithstanding a fall in oil production.

The GDP rebasing shows a more diversified economy, with the non-oil sector comprising 86% of GDP and services now put at 52% of GDP (previously 29%) with the oil and agriculture sectors now having a reduced share in GDP.

Nigeria’s sovereign and overall external balance sheets, current account surplus, debt service ratio and external liquidity are all stronger than ‘BB’ category medians. However, the current surplus has been declining (4.1% of GDP in 2013) and may be overstated given large errors and omissions. FDI is less than 1% of GDP, amongst the lowest in the region.

Reform progress remains mixed. Electricity generators and distributors are now in private hands but transmission remains a problem and output remains volatile, affected by gas supply and other problems. Agricultural reforms continue to gain traction, leading to higher output and a reduced import bill. However, the Petroleum Industry Bill (PIB) remains stalled. Strong vested interests make structural reform a continual struggle.

Nigeria’s ratings are constrained by weak governance, as measured by the World Bank, low per capita income, even after the 89% uplift to 2013 GDP due to rebasing, and vulnerability of public finances and reserves to oil price volatility. Political noise has increased this year ahead of the February 2015 presidential and gubernatorial elections. The Boko Haram insurgency has also intensified this year though is geographically contained.

RATING SENSITIVITIES

The main factors that individually or collectively might lead to rating action are as follows:

Positive:

  • Accelerated structural reforms that bring faster, more inclusive growth and higher employment and per capita incomes.
  • Signs of a sustained increase in electricity production and passage of the PIB would be especially positive.
  • A longer track record of low single-digit inflation.
  • Improved external buffers, either in the ECA or the new Sovereign Wealth Fund (NSIA).
  • Improved governance as reflected in World Bank and anti-corruption indicators.

Negative:

  • Renewed pressure on reserves that further depletes Nigeria’s fiscal and external buffers.
  • Reversal of key structural reforms.
  • A serious deterioration in domestic security, whether stemming from terrorism or election-related violence.

 

KEY ASSUMPTIONS

Nigeria is highly dependent on oil for fiscal and external revenue. Fitch assumes Brent crude will average USD105/bl in 2014 and USD100/bl in 2015.

Fitch assumes the current stance of relatively conservative macro policy and incremental structural reform will remain in place in the forecast period, which goes up to the election year of 2015.

In particular, no significant fiscal spending overruns are assumed. At the same time, no significant acceleration in non-oil growth or net exports has been assumed nor any further reduction in petroleum subsidies, which would benefit public and external finances.

Fitch believes passage of the PIB before the election is unlikely, but failure to do so is assumed not to have any serious short-term impact on oil production. However, oil theft and associated capacity shutdowns are assumed to continue, although not worsen, meaning average oil output will remain around 2.2mb/d, significantly below potential of 2.5mb/d. It is also assumed that there is no major resurgence of violence in the Delta region.

The Boko Haram terrorist insurgency is assumed to remain contained and not to have serious consequences for economic performance.

International rating agency Says Kaduna Economy Is Stable

International rating agency, Fitch Ratings has affirmed Kaduna state’s long-term foreign and local currency ratings at ‘B+’ and national long- term rating at ‘A+(NGA)’, reflecting the state’s stable financial performance and gradually developing local taxes.

Fitch also took into account the state’s high infrastructural needs amid weak socio-economic indicators by international standards. It noted that the outlook is stable.

Kaduna in north west Nigeria has being affected by incessant insurgency attacks by fundamentalist sects, fighting the Nigerian government across the northern part of the part.

Fitch expects the operating margin to continue to hover around the 40 per cent posted in 2012, reflecting the state’s efforts to develop non-oil revenues while controlling the growth of costs.

The rating agency further stated that the ratings could be upgraded if the development of Internally Generated Revenue System (IGRS) strengthens the operating margin towards 50 per cent while controlling cost growth.

UBA Gets Improved Global Ratings

The United Bank for Africa PLC, one of Africa’s leading financial services institutions, has been assigned impressive ratings by two of the world’s leading rating agencies, Global Credit Rating (GCR) Co. and Fitch Ratings.

GCR assigned UBA a long term national rating of AA- and a long term international rating of B+, both with stable outlook.

The agency also affirmed the first two issuances of the group’s N400 billion medium term debt, capital raising programme as high investment grade instruments, based on the group’s strong fundamentals and widespread brand recognition.

GCR emphasized the group’s long corporate history and diversified risk and earnings base as other factors that influenced the rating outcome.

In a related development, Fitch affirmed UBA’s long term foreign currency rating at B+ and its long term national rating at A+

The agency crowned the ratings with stable outlook, citing strong earnings recovery, low impairment risks and high liquidity as key drivers of the rating results.

Reacting to the improved ratings, the bank noted that the good ratings attest to the group’s strong liquidity, solid risk management and robust balance sheet.