Fitch Ratings has revised the Outlook on 4 Nigerian banks to Negative from Stable and affirmed the Long-Term Issuer Default Ratings (IDRs) of 10 banks and financial institutions.
The affected institutions are Zenith Bank Plc (Zenith), First Bank of Nigeria Ltd (FBN), United Bank for Africa Plc (UBA), Guaranty Trust Bank Plc (GTB), Access Bank Plc (Access), Diamond Bank Plc (Diamond), Fidelity Bank Plc (Fidelity), Union Bank Plc (Union) First City Monument Bank Limited (FCMB), Wema Bank Plc (Wema) and the bank holding company, FBN Holdings Plc (FBNH).
The National Ratings of Stanbic IBTC Bank Plc (SIBTC), as well as its bank holding company, Stanbic IBTC Holdings Plc (SIBTCH) are also affirmed. The IDR Outlooks on Zenith and GTB (both at B+) have been revised to Negative following a recent similar action on Nigeria’s (B+) Outlook. The other two banks, whose Outlooks have been revised to Negative, are Diamond and FBN/FBNH and the revision reflects their weaker financial profiles.
“We have downgraded the Long-and Short-Term National Ratings of FBN/FBNH and Diamond to ‘BB+ (nga)’ and ‘B(nga)’ respectively to reflect heightened vulnerability of capital due to downside asset quality risks,” Fitch said in a statement. The IDRs are all in the ‘B’ range, indicating highly speculative fundamental credit quality, and factor in the banks’ weakened credit profiles due to challenging macro-economic conditions and market volatility.
Nigeria’s operating environment continues to be affected by the oil price shock, slow GDP growth, continuing pressure on the naira, scarcity of hard currency in the FX interbank market and policy uncertainty, according to Fitch. Fitch notes that foreign currency-adjusted ‘normalised’ operating profit, although still healthy, is vulnerable to rising loan impairment charges (LICs). As a consequence, the banks VRs remain in the highly speculative ‘b’ range. Fitch is monitoring the banks’ ability to meet maturing external obligations given current difficult market conditions and limited supply of foreign currency from the Central Bank of Nigeria (CBN).
The new foreign-exchange regime has provided limited respite in accessing foreign currency in the interbank market. FX forward contracts provided by the CBN since June 2016 have helped the banks access foreign currency to reduce a large backlog of overdue trade finance obligations.
These were either extended or refinanced with international correspondent banks. Further depreciation of the naira against the US dollar would negatively impact banks’ regulatory capital ratios due to the translation effect of risk-weighted assets (RWAs).
“Some banks have limited buffers over regulatory minimums and further erosion of capital ratios beyond our expectations could be credit-negative,” Fitch said. GTB and Zenith are the highest rated banks in Nigeria with Long-Term IDRs and VRs of ‘B+’ and ‘b+’ respectively.
The Negative Outlooks on their Long-Term IDRs reflect Fitch’s view that they cannot be rated above the sovereign due to the close correlation between the domestic operating environment and their credit profiles, including large holdings of government securities.