Fitch Rates Kaduna’s Economy Stable

Fitch Rates Kaduna’s Economy Stable, Says Commissioner

 

The Kaduna State government has announced that its long-term foreign and local currency issuer default ratings and national long-term rating outlooks have been confirmed to be in stable a condition by the global economy rating agency, Fitch.

Commissioner for Finance in the state, Mr Suleiman Abdu-Kwari, said this on Friday in Kaduna while reacting to the rejection of the state’s $350million loan by the Senate.

He described the Senate’s decision as a deliberate attempt by some disgruntled politicians to undermine the progress being made in developing the state and alleviating the people’s sufferings.

Mr Abdu-Kwari alleged that the reasons given by the lawmakers were baseless and unpatriotic, as various rating indicators by Fitch showed that Kaduna is capable to repay the World Bank loan which has less than one per cent interest rate.

He explained that the World Bank approved the loan after assessing all the indicators which include efforts by the state government to increase Internally Generated Revenue (IGR).

According to the commissioner, other factors considered are the likely increase in financial debt due to the high infrastructure investment programme and the expectations that the state will achieve a healthy financial performance amid mild growth in local taxes and subsidies from the Federal Government.

“In 2014 and early 2015, we had complained about the poor state of Kaduna State public schools and hospitals. As soon as we took office, the problems we had campaigned about became our responsibility to resolve.

“We were shocked to learn in our first week in office that at least 50 per cent of our pupils sat on floors because of a lack of classroom furniture. We also received briefings indicating that apart from lacking doors, windows, roofs, toilets and water, many of our schools also had unqualified teachers,” Abdu-Kwari revealed.

He said Governor Nasir El-Rufai responded to the challenges by declaring a state of emergency in education and started to fix schools the schools.

The commissioner explained that after fixing almost 10 per cent of more than 4,200 primary schools, the government realised that it would need a minimum of N60bn just to fix primary schools.

He said the World Bank had scrutinised the state to ensure the loan was truly needed, and they were convinced that the government met their standards.

The loan had been approved by the State House of Assembly, the House of Representatives, and the Federal Executive Council.

The state government, however, asked the Senate to reconsider its decision, saying it has met all necessary criteria needed to access the loan facility.

IMF Affirms Nigeria As Africa’s Biggest Economy

Ahead of South Africa and Egypt, the IMF, Nigeria, EconomyInternational Monetary Fund has affirmed Nigeria as the biggest economy in Africa.

Nigeria was reported to have lost its spot as Africa’s biggest economy to South Africa in August 2016, following the recalculation of the country’s Gross Domestic Product.

However, the IMF’s World Economic Outlook for October 2016, puts South Africa’s GDP at 280.36 billion Dollars, from 314.73 billion Dollars in 2015.

Meanwhile, latest estimates from the IMF put Nigeria’s GDP at 415.08 billion Dollars, from 493.83 billion Dollars at the end of 2015.

Although Egypt’s 2016 data was reported as unavailable, its 2015 size remained at 330.15 billion Dollars while that of Algeria, one of the largest economies on the continent, was put at 168.31 billion Dollars.

Global growth is projected to slow to 3.1 percent in 2016 before recovering to 3.4 percent in 2017.

The forecast, revised down by 0.1% point for 2016 and 2017 relative to April, reflects a more subdued outlook for advanced economies following the June U.K. vote in favor of leaving the European Union (Brexit) and weaker-than-expected growth in the United States.

Growth In 2017

The International Monetary Fund also predicted that the Nigerian economy will grow by 0.6% in 2017, effectively lifting the country out of an officially declared recession.

IMF, Nigeria, Recession, 2017
According to the Bretton Woods institution, Nigeria has a marginal lead over South Africa and Egypt in terms of GDP

In the IMF’s WEC report released on October 5, Nigeria’s real GDP is expected to increase marginally by 0.6% with Consumer Prices rising by 17.1% also, Fitch ratings on the other hand, also projected a 2.6% growth in Nigeria’s GDP for 2017.

Nigeria’s Current Account Balance is however also forecast to slump further by 0.4% next year.

Beyond 2017, IMF expects global growth to gradually increase by 3.8% in 2021.

This recovery in global activity, which is expected to be driven entirely by emerging market and developing economies, is premised on the normalization of growth rates in countries like Nigeria, Russia, South Africa, Latin America, and parts of the Middle East.

Although the global rating agency had reduced its forecast for the country’s 2016 GDP growth to 1% from 1.5% due to weak performance in the first half of the year, Fitch believes the economy will bounce back in 2017 but with downside risks if dollar liquidity remains tight.

Furthermore, Fitch believes that dollar liquidity will not significantly improve until market participants become more comfortable with the sustainability of the exchange-rate level, which is likely to require further narrowing of the spread between the official and parallel market rates.

The rating agency also increased Nigeria’s average CPI forecast for 2016 to 14% from 11% and expects the government to secure financing from multilateral development banks and bilateral sources.

 

Nigeria’s Rating At Risk If $1.3billion Loan is blocked, NNPC Warns

The Nigerian National Petroleum Corp (NNPC) has told lawmakers at the National Assembly that any move to block its deals to finance payment of $3.5 billion owed to fuel traders could expose the country’s economy to a sovereign credit downgrade or a banking crisis.

Major oil trading houses including Vitol, Glencore, Trafigura and Mercuria are owed millions of dollars by Nigeria for fuel deliveries, according to a government-commissioned report released last year.

The report showed that Glencore was owed $138 million, Vitol $198 million and Trafigura $53 million.

NNPC accumulated the debts to traders, some of which are three years old, due to non-payment of fuel subsidies by the government, the head of the company told parliament.

But NNPC has explained that the financial facility it is seeking is not a loan warning that “the exposure of domestic banks is about $1.5 billion, and a default of this magnitude of exposure could lead to another round of banking crisis,” NNPC said in a statement.

NNPC’s Group Managing Director; Andrew Yakubu stated that “the continued delay has dire consequences ranging from a major negative impact on the sovereign credit rating to costly litigation against the federal government in foreign courts,” it added.

The House of Representatives committee asked to see NNPC’s documents and said it would investigate.

According to Reuters News agency, the Ministry of Finance Ministry did not respond to calls for comment as well as Trafigura, Mercuria, Vitol and Glencore all declined comment.

Engineer Yakubu also explained to the lawmakers that NNPC was borrowing $1.56 billion through a special purpose vehicle to offset part of the fuel import debts and that it had allocated 15,000 barrels per day of oil output for a period of up to five years to pay back the money, the company said in a statement.

Engineer Yakubu said the company planned to settle the remaining debts through a second such forward sales arrangement as well as internal resources.

Lawmakers have questioned the fund-raising deal, saying NNPC is not allowed to take out loans under rules set out in the constitution.

Standard Chartered, which managed the banking deal, also reportedly declined official comment.

Credit rating

Credit rating agency Standard and Poor’s upgraded Nigeria in November, citing improved financial stability and optimism over banking and electricity reforms.

Its ratings from the three major agencies are still in junk territory, however, at BB- from S&P and Fitch and Ba3 from Moody’s.

Nigeria’s banking crisis ended with a sharp recovery in bank earnings last year after a 2009 credit crisis led to the near collapse of nine lenders.

President Goodluck Jonathan attempted to end fuel subsidies a year ago but backed down after it sparked widespread protests.

Decades of mismanagement and corruption have left NNPC heavily indebted, several audits have shown.

Trading companies have been battling for months to recoup the money, and some have stopped supplying Nigeria with fuel. Most have remained in the West African country, however, partly because of the huge opportunities it presents in the trading of crude oil.

Fitch descries Nigeria’s high interest rate

The marked drop in loan growth in the Nigerian banking sector reduces the pressure on asset quality and capital and that’s according to international rating agency, Fitch.

Fitch says it expects loan growth to be subdued until 2013, as the market adjusts to higher interest rates following the expiration of the interbank guarantee from the Central Bank of Nigeria last year.

The higher interest rates reflect heightened lending risks in the inter-bank market and greater competition for funds.

The agency believes a more pedestrian pace of credit origination helps the banks avoid asset-quality problems and places less strain on capital.

 

 

Fitch affirms Nigerian banks

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+’

Fitch says Nigeria economy shows signs of progress

In a presentation on Nigeria’s Debt Capital Markets, Richard Fox, Fitch Ratings’ Head of Africa/Middle East sovereigns, on Tuesday compares Nigeria’s current sovereign debt metrics to those of Emerging Markets (EMs) that have recently made the transition to investment grade (IG).

Fitch says though Nigeria's reserves have risen by around US$2 billion this year, they are not rising as fast as in the majority of big oil exporters.

Since 2004, seven EMs have moved up the rating scale from Nigeria’s current ‘BB-‘ level to the lowest investment grade ‘BBB-‘ rating.

The most recent was Indonesia in 2011; the others are Azerbaijan (2010), Brazil (2008) and Bulgaria, Kazakhstan, Romania and Russia (2004).

Of the seven, four are oil producers to varying degrees. The three notch upward movement has typically taken between six and eight years, which makes it a plausible ambition for Nigeria in the context of its Vision 2020.

Nigeria’s growth challenges

Among the key indicators that Fitch uses to assess sovereign creditworthiness, three stand out as being well outside the range of experience of recent newly IG EMs: per capita GDP, reserve cover and governance (the latter measured by the World Bank’s governance indicators).

These areas represent Nigeria’s biggest challenge to improving its rating, as highlighted in Fitch’s previous research.

Of the three, reserve cover is the most susceptible to rapid improvement, particularly at current high oil prices. But although Nigeria’s reserves have risen by around US$2 billion this year, they are not rising as fast as in the majority of big oil exporters.

Other external data such as the current account and net external assets are comparable to those of newly IG sovereigns. The exception is commodity dependence, reflecting the dominance of oil revenues. Although some newly IG oil exporters have had even higher oil dependence, this has been compensated by a stronger international reserves cushion against oil shocks.

Part of the explanation for the improved trend of reserves this year is the authorities’ actions to reduce FX demand for refined petroleum imports, including the partial reduction in the petroleum subsidy earlier this year.

The reduction in the benchmark oil price in the 2012 budget, albeit partially reversed by the National Assembly, was also a step in the right direction.

Nevertheless, although the Federal government’s budget deficit and consolidated government budget surplus are within the range experienced by newly IG countries, they are not as strong as some of the major oil producers when they made the transition to IG – notably Azerbaijan and Russia. Increased fiscal savings in Nigeria’s new sovereign wealth fund will be a key driver of Nigeria’s rating.

Nigeria’s stable and robust GDP growth of more than 7% since 2009 compares well with the record of newly IG sovereigns and is even more creditable given its reliance on the non-oil sector.

However, structural reforms planned in the electricity, oil and agriculture sectors, will be crucial if growth is to be diversified and sustained closer to double digits, in order to close the large gap in per capita income. Even with a likely substantial increase in nominal GDP this year due to the rebasing of the national accounts, Nigeria’s per capita GDP will still be outside the range enjoyed by the newly IG countries when they became IG.

Nigeria’s inflation rate is also still on the high side – in low double digits compared to an average of 7.5% for newly IG sovereigns and a range of 5% to 12%.

By contrast, Nigeria scores much better on the government debt ratio which, despite creeping up, at a little under 20% of GDP is lower than the 26% average for newly IG sovereigns. Nigeria’s ability to finance itself domestically, in its relatively well developed domestic capital market, is also a major strength compared to many newly IG sovereigns.