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Tag: Fitch Ratings

  • Fitch rates Nigerian banks stable

    Fitch rates Nigerian banks stable

    Global rating agency Fitch Ratings has affirmed that several Nigerian banks have intrinsic strengths to maintain stable business outlook, despite macroeconomic challenges.

    In its latest ratings report, Fitch stated that Nigeria’s largest banks and many others have sufficient buffers to remain stable in the face of macroeconomic challenges.

    Fitch affirmed the banks’ ratings of Long-Term IDR at ‘B-’ as well as the National Long-Term Ratings with Stable Outlooks.

    The banks are: Access Bank Plc; Zenith Bank Plc; United Bank for Africa (UBA) Plc; Jaiz Bank Plc; Guaranty Trust Holding Company Plc (GTCO) and its flagship Guaranty Trust Bank Limited (GTB); FBN Holdings Plc and its flagship subsidiary, First Bank of Nigeria Ltd; Fidelity Bank Plc and Wema Bank Plc.

    Fitch Ratings also affirmed the National Long-Term Ratings of Stanbic IBTC Holdings Plc and its flagship subsidiary, Stanbic IBTC Bank Plc at ‘AAA (nga)’ with a Stable Outlook.

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    “The affirmation of the other Nigerian banks’ and bank holding companies (BHCs)’ Long-Term IDRs and National Ratings reflects Fitch’s view that these issuers (banks) are likely to remain compliant with their respective regulatory minimum capital adequacy ratio (CAR) requirements despite the devaluation, with sufficient buffers and pre-impairment operating profits to tolerate a further moderate naira depreciation and the second-order effects of a challenging economic environment on loan quality,” the rating report stated.

    The report noted that while Stanbic IBTC Holdings and Stanbic IBTC Bank’s National Ratings were driven by potential support from their ultimate parent, South Africa-based Standard Bank Group Limited, the IDRs and National Ratings of the other banks were driven by their standalone creditworthiness, as expressed by their viability rating (VRs).

    Fitch Ratings however maintained the Rating Watch Negative (RWN) on First City Monument Bank’s (FCMB) and Union Bank of Nigeria PLC’s (UBN) Long-Term IDRs of ‘B-’ and National Long-Term Ratings of ‘BBB+(nga)’ and ‘BBB(nga),’ respectively.

    The global rating agency downgraded Ecobank Nigeria Limited’s (ENG) Long-Term Issuer Default Rating (IDR) to ‘CCC+’ from ‘B-’ and removed it from RWN citing the recent devaluation of the Nigerian naira. Fitch also downgraded the bank’s National Long-Term Rating to ‘BB+(nga)’ from ‘BBB (nga)’. The Outlook on the Long-Term IDR and National Long-Term Rating is Stable.

    Justifying the ratings, Fitch Ratings noted that the Nigerian naira was recently devalued sharply by about 40 per cent, exceeding expectations of a more moderate depreciation in 2024. The large devaluation is the second within a year, 70 per cent devaluation since end-2022, and has converged the official exchange rate with the parallel market rate.

    The agency said the continued move away from a longstanding managed exchange rate regime is conducive to restoring capital inflows and reducing foreign-currency (FC) shortages that have weighed on economic activity in recent years.

    It however noted that the change in forex management stance “creates short-term macroeconomic risks, such as accentuating already-high inflation that may weigh on economic growth, heightening loan quality and capital pressures already facing the banking sector”.

    “Fitch now expects the banking sector’s impaired loans (Stage 3 loans) ratio to increase at a faster pace than before the devaluation, which itself has caused already material FC-denominated problem loans (Stage 2 and Stage 3 loans; predominantly oil and gas sector loans) to have inflated relative to gross loans and core capital and accentuated credit concentration risks.

    “However, asset-quality risks are mitigated by the small size of banks’ loan books (end-third quarter 2023: net loans represented 35 per cent of domestic banking sector assets; non-loan assets mainly being sovereign exposure) and most FC loans having been extended to borrowers with FC receivables. Furthermore, pre-impairment operating profit, which we expect to benefit from rising interest rates, generally provides a sufficient buffer to absorb loan impairment charges without affecting capital,” Fitch stated.

    The report pointed out that the Central Bank of Nigeria (CBN) has published new circulars and made a number of statements accompanying the recent devaluation. One circular issued after the devaluation on 31 January, aimed at increasing the supply of FC, prohibited banks from having net long FC positions, and set 1 February as the deadline for compliance. Net long FC positions have mitigated the impact of past devaluations, including the recent devaluation, on capital ratios as they result in foreign-exchange revaluation gains that cushion the impact of inflated FC-denominated risk-weighted assets (RWAs).

    “Without net long FC positions, banks’ capital positions are now more exposed to Fitch’s expectation of a further moderate depreciation of the naira, but total CAR, in most cases, will remain above regulatory minimum requirements,” Fitch stated.

  • $2.5b Eurobond: Nigeria faces higher debt service cost – Fitch

    Nigeria’s issuance of $2.5 billion Eurobond in the first quarter of this year is expected to raise the country’s debt service cost and refinancing risks, Fitch Ratings, said on Wednesday.

    In a report titled:  Sub Saharan Africa Sovereign Debt Steadies but Refinancing Risk May Rise, the global rating agency said borrowing in foreign currency in international markets also exposes sovereigns to foreign exchange refinancing risk and a potentially higher debt service/Gross Domestic Product (GDP) burden in the event of local currency depreciation.

    “Thus although it can appear cheaper if domestic interest rates are high, as in Nigeria, which used the proceeds of its February issue to refinance more expensive naira-denominated debt, it generally involves a net increase in risk, in Fitch’s view,” it said.

    It said weak Public Financial Management (PFM) could increase the challenge of transitioning from concessional to commercial funding, and of managing the associated risks, such as exposure to tighter global monetary policy and the capacity to navigate interest rate and currency risks.

    It said SSA Eurobond maturities are spread out over the next decade, but weak Public Finance Management still means there are risks associated with them. Weak PFM also means that upward pressure on government debt will persist, as it limits the capacity to implement consolidation plans and to contain spending and mobilise domestic revenue sources more fully.

    It hinted that Sub Saharan Africa (SSA) sovereigns, including Nigeria, are making greater use of international debt market financing. This continued in first quarter of this year with issues from Kenya ($2 billion), Cote d’Ivoire (EUR1.7 billion) and Nigeria ($2.5 billion). Ghana’s parliament last month approved plans for a Eurobond issue.

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    It said that tapping international capital markets can be an important financing option where liquidity in local funding markets is low. “Long-dated international issuance can extend repayment schedules (Kenya and Cote d’Ivoire’s 1Q18 deals both featured 30-year tranches). Market access that allows for opportunistic international debt issuance is therefore beneficial for SSA sovereigns,” it said.

    It however, said that the rise in debt since 2011, growing use of commercial funding, and in some cases currency depreciation have increased debt servicing costs in some countries.  It said seven of the 18 Fitch-rated SSA sovereigns had general government interest payments/revenues above 15 per cent last year, the highest since at least 2000.

    The SSA sovereign debt levels are stabilising following their recent sharp increase, but growing use of the international capital markets may increase refinancing risk as the amount of international debt coming due rises, Fitch Ratings says. Maturities appear manageable in the near term, but public financial management (PFM) in the region is often weak, meaning that capacity to manage refinancing risk is an important factor in our SSA sovereign credit assessments.

    “We expect median SSA general government debt to be broadly stable this year at 52.6 per cent of GDP, following a rise of over 20 percentage point in the preceding six years. This reflects improved commodity prices and fiscal consolidation in some countries, including those with International Monetary Fund programmes

  • Fitch affirms Sterling Bank’s ratings

    Fitch Ratings has affirmed Sterling Bank’s Long-Term Issuer Default Rating (IDR) of ‘B-’ and National Long-Term Rating of ‘BBB-(nga)’ with a stable outlook for reasons that include its coherent strategy and ability to attract more stable deposits in challenging operating conditions.

    Cutting through the industry’s jaded product offerings through innovation, the leading Tier Two lender’s IDRs are driven by its standalone creditworthiness, coherent strategy, business transformation initiatives, and strong management team, in an updated rating released yesterday by the global credit rating agency.

    According to Fitch, Sterling Bank’s Non-Performing Loan (NPL) ratio, based on prudential requirements, was 6.1% at end of nine months in 2017, while impaired loans ratio and NPL ratio are below sector averages.

    Remarkably, Fitch noted that the lender has successfully attracted more stable retail deposits. “Positively, we also noted that the bank has successfully attracted more stable retail deposits, including strong growth in ‘non-interest bearing’ deposits (albeit from a low base)”.

    It added that Sterling Bank’s capital adequacy ratio based on Basel II of 11.4% at end of nine months in 2017 was above the regulatory minimum of 10%. “In addition to higher retained earnings and by repositioning its balance sheet, the bank is expected to raise subordinated debt in the domestic market (which counts towards Tier 2 regulatory capital) to improve capital buffers”.

    “In the medium term, we expect Sterling’s prospects to improve as the franchise strengthens with the expansion of its retail/SME and ‘non-interest-bearing’ lines and business reorganisation.”

     

     

     

  • Fitch Ratings may upgrade FBN Subordinated Notes

    Fitch Ratings may upgrade FBN Subordinated Notes

    Fitch Ratings has placed First Bank of Nigeria’s (FBN) subordinated notes, which are rated ‘CCC’/’RR5′, on Rating Watch Positive (RWP). Placing a debt on RWP means that rating for the instrument may likely be upgraded.

    The FBN notes were issued through FBN Finance Company BV, a special purpose vehicle, which was established to provide funding for the bank.

    FBN’s other ratings are unaffected by this rating action. The rating action follows publication of an exposure draft on December 12.

    The exposure draft, Fitch said, includes a proposal to append ‘+’ or ‘-’ modifiers to ‘CCC’ Long-Term Issuer Default Ratings (and long-term debt ratings) to denote relative status/creditworthiness within this rating level. The subordinated debt of FBN is rated one notch below FBN’s ‘b-’ Viability Rating (VR).

    If modifiers are introduced to the ‘CCC’ IDR category as proposed, the one notch differential would be maintained and FBN’s subordinated debt would be rated ‘CCC+’. The notching from the VR reflects higher-than-average loss severity for subordinated debt relative to senior debt. No additional notches for non-performance risk have been applied.

    The ratings on the subordinated notes are sensitive to a change in FBN’s VR. Fitch expects to resolve the RWP within the next six months upon the conclusion of the Exposure Draft period. If the final criteria are substantially similar to the exposure draft, then the rating on the subordinated notes is likely to be upgraded to ‘CCC+’ after the final criteria are published.

  • Stanbic IBTC retains AAA national Fitch ratings

    Stanbic IBTC Bank Plc and its holding company, Stanbic IBTC Holdings Plc, have retained their AAA national ratings by Fitch Ratings, the global leader in credit ratings.

    The rating reaffirmed their strong fundamentals and stability, especially the ability to meet their financial commitments as they fall due.

    The two institutions recorded AAA (nga) national long-term rating, which provides a relative measure of credit worthiness for rated institutions in Nigeria. The AAA national rating is assigned to an institution with the lowest relative risk.

    In arriving at the rating for Stanbic IBTC, Fitch took account of the strong parental support from Standard Bank Group, to which Stanbic IBTC Holdings PLC belongs, as the group provides support in such areas as staff training, provision of information technology upgrades and best practice processes as well as strong corporate governance practices.

    “Stanbic IBTC Holdings PLC’s (SIBTCH) National Ratings are based on potential support from its parent, South Africa’s Standard Bank Group Limited (SBG/Group; BB+/Stable), if required. Our view of institutional support considers SIBTCH’s strategic importance to SBG, high levels of integration between the parent and the subsidiary, as well as SBG’s majority shareholding in SIBTCH (53.2%) through Stanbic Africa Holdings Limited),” the agency stated.

    Stanbic IBTC Holdings Plc and Stanbic IBTC Bank received similar ratings in 2016 and February 2017 after a thorough examination of its credit process and financial results. The bank’s diversified loan portfolio was reviewed, with its impact on various sectors of the economy taken into account. “One of SIBTCH’s main strengths is its diversified earnings. Non-interest income generation is high and underpinned by fees and commissions and trading income. Loan impairment charges are high, but manageable in the context of strong earnings. Costs are well controlled. As a result, profitability metrics are healthy,” Fitch added.

    Chief Executive of Stanbic IBTC Holdings PLC, Yinka Sanni, said the ratings are a clear testament of the financial institution’s strength, strong leadership and the unyielding support of its parent company. He reiterated Stanbic IBTC’s commitment to the Nigerian market and pledged it will continue to provide support to all sectors of the economy in order to keep moving individuals and businesses forward.

    “We are elated by this validation of our strength. This will help to boost our drive to build a strong end-to-end financial solutions institution that offers bespoke products and services to our clientele. Our commitment to supporting the attainment of Nigeria’s developmental aspirations remains resolute,” Sanni said.

     

  • Fitch Ratings assigns B+ to Nigeria’s $1.5b Notes

    Fitch Ratings has assigned Nigeria’s $1.5 billion 6.5 per cent Senior Unsecured Notes due November 28,  2027 and $1.5 billion 7.625 per cent Senior Unsecured Notes due November 28,  2047 the final rating of ‘B+’.

    The final rating replaces the expected rating of ‘B+ (EXP)’ that Fitch assigned on November 15.

    The expected rating is in line with Nigeria’s Long-Term Foreign-Currency Issuer Default Rating (IDR) of ‘B+’ with a negative outlook.

    The rating, Fitchsaid, was  sensitive to any changes in Nigeria’s Long-Term Foreign-Currency IDR.

    Also, on August 31, Fitch affirmed Nigeria’s Long-Term Foreign-Currency IDR at ‘B+’ with a negative outlook. The Long-Term Local-Currency IDR is also ‘B+’ with a negative outlook.

    Data released by the Debt Management Office (DMO) showed that Eurobonds account for 21.5 per cent of Nigeria’s $15.35 billion foreign debt and 53 per cent of debt service payments in the third quarter.

    Total domestic debt stood at N15.68 trillion as at September, compared with N13.35 trillion last year.

    Multilateral loans, including financing from the World Bank, accounted for 64.5 per cent of foreign loans while bilateral loans with China and other countries make up 14 per cent.

     

  • Banks access to forex improves over new window, says Fitch Ratings

    Banks access to forex improves over new window, says Fitch Ratings

    Fitch Ratings has said  banks’ ability to access foreign currency (FC) has improved considerably since the Central Bank of Nigeria (CBN) introduced a foreign exchange “window” at end-April aimed at investors and exporters.

    The Nigerian Autonomous Foreign Exchange Rate Fixing (NAFEX) mechanism, commonly referred to as the “Investors’ and Exporters’ FX Window”, appears to be boosting FC supply and the flow of FC liquidity into the banking system. Improved access to FC means that liquidity pressures have, for now, eased for Fitch-rated banks.

    It said FC was in acute short supply through much of 2016 and early this year, restricting imports and forcing several Nigerian banks to extend maturities on their trade finance obligations. NAFEX provides investors and exporters with a more transparent mechanism through which they can sell FC to willing buyers.

    “Authorised banks act as intermediaries, clearing funds supplied by portfolio investors and exporters and ensuring timely execution of settlement for buyers. Despite its short record, volumes transacted through NAFEX are growing. In our opinion, NAFEX offers a more transparent alternative to accessing FC than is available through the other foreign-exchange markets in the country,” it explained.

    It added that several exchange rates operate in Nigeria. The CBN was the main supplier of FC during the height of the FC liquidity crisis and it still sells FC to the market through regular auctions, with banks acting as intermediaries.

    Its official exchange rate is N305 to the US dollar but it sets alternative official rates at its FC auctions and different rates apply for retail, wholesale, personal and small business purchasers of FC.

  • Fitch reaffirms Stanbic IBTC’s triple A rating

    Fitch Ratings has re-affirmed the AAA(nga)’ ratings of Stanbic IBTC Holdings Plc, a testament to the financial institutions’ strong fundamentals and stability.

    Stanbic IBTC was given a similar rating last year after a thorough examination of its credit process and financial results. The institution’s diversified loan portfolio was reviewed with its impact on various sectors of the economy taken into account. Among economic sectors impacted by the bank were agriculture, construction, real estate and infrastructure; electricity and other utilities; consumer credit; manufacturing; oil and gas and general commerce. Others were downstream oil and gas, transportation and communication, among others.

    The national rating provides a relative measure of credit worthiness for rated institutions in Nigeria and the AAA national rating is assigned to an institution with the lowest relative risk. In the ratings release, Fitch also maintained a stable outlook for Stanbic IBTC Holdings.

    In its report, the rating agency also reviewed the capital adequacy of Stanbic IBTC in compliance with regulations and concluded that it was adequately capitalised with capital adequacy ratio above the regulatory requirement.

  • Fitch Ratings affirms Wema Bank’s BB-, stable outlook

    Fitch Ratings affirms Wema Bank’s BB-, stable outlook

    Fitch Ratings, a global leader in credit ratings and research, has affirmed Wema Bank’s Viability Rating (VR), saying it has a stable outlook.

    The agency also affirmed the Long-term National Rating (Wema) at (BBB-) to reflect the improvement in creditworthiness over time relative to the best credits in Nigeria.

    In Fitch’s opinion, the banking industry will remain challenging considering volatile and low oil prices, continued disruptions in oil production and constraints regarding the forex liquidity.

    As such, the industry could witness a rise in non-performing loan ratios, though strong capital ratios helped absorb the one-off negative fore shock. It said, the forex devaluation could impact consumer demand.

    It said the Long-term Issuer Default Ratings (IDR) of Wema remains on stable outlook as the rating is driven by its Viability Ratings (VR) and there is no expectation of any material change in the bank’s intrinsic creditworthiness.

    Wema Bank’s strengths, which underpin its long- and short-term ratings, include its strong risk management culture, low NPL exposure and good liquidity levels. The bank’s affirmed rating further reinforces its resolve to remain a smarter and efficient bank.

    Wema Bank Plc’s Managing Director, Segun Oloketuyi, said the rating is an affirmation of the bank’s transformation and its positioning as one of the major players within the  retail banking landscape.

    Fitch also affirmed the Viability Ratings (VR) of all the Nigerians banks, Fitch has revised the SRFs to ‘B’ from ‘B+’ for the systemically important banks; FirstBank, UBA, Zenith and GTBank, following the downgrade of Nigeria’s sovereign ratings.

    The challenging and volatile operating environment in Nigeria and other key rating factors, particularly the banks’ financial profiles, constrain the VRs in the highly speculative ‘b’ range. Despite slower asset growth and higher loan impairment charges, Fitch expects banks to remain profitable in the year due to still strong earnings generation and as such all banks’ national ratings have been affirmed given their unchanged respective creditworthiness relative to each other.

  • Fitch Ratings: Banks need liquidity injection

    Fitch Ratings: Banks need liquidity injection

    International agency Fitch Ratings yesterday said Nigerian banks needed more liquidity following the withdrawal of public sector deposit.

    The agency said the withdrawal of the estimated N1.3trillion from the banks as a result of the implementation of the Treasury Single Account (TSA) meant that they lost 10 per cent of their deposits.

    The Central Bank of Nigeria (CBN), it said, should boost the banks’ liquidity.

    The agency also said the Monetary Policy Committee (MPC)’s decision that cut Cash Reserve Ratio (CRR), a mandatory reserve requirement on all local-currency deposits, to 25 per cent from 31 per cent to ease liquidity pressure, stimulate new lending and boost economic growth will not add liquidity to the banking system because it releases no additional foreign currency.

    The agency said the banks are low on dollars. It said: “Lower reserve requirements will not offset the tighter foreign currency liquidity at banks. A currency split of public-sector deposits is not disclosed but in our opinion, foreign currency deposits are substantial, held up by oil-related deposits. The centralising of public-sector and government-related foreign currency deposits at the TSA has made it increasingly difficult for commercial banks to meet customer demand for foreign currency,” it said.

    Fitch said foreign currency availability was already strained in 2015 due to falling oil revenues, central bank action to defend naira depreciation and heightened negative investor sentiment towards emerging markets.

    It said warnings throughout the year that JP Morgan intended to remove Nigeria from its Emerging Markets index, which occurred in mid-September, also triggered heavy foreign currency outflows as investors sold Nigerian securities