Fitch assigns “B” mixed outlook rating to Nigeria’s leading Tier-1 banks

Charles Abuede

• Access, GTB, First Bank, Zenith, UBA in the frame

Fitch Ratings, the global rating agency, has assigned and affirmed a “B” mixed outlook rating to Nigeria’s key Tier-1 banks, including Access Bank, Guaranty Trust Bank, FBNHoldings (FBNH), which owns the operating subsidiary, First Bank of Nigeria Limited (FBN), Zenith Bank and the United Bank for Africa (UBA).

The banks were also assigned “B” as their Long-Term Issuer Default Rating (IDR), with a mixed outlook, which saw them being moved out of the Rating Watch Negative (RWN).

The removal of the RWN on Nigeria’s tier 1 financial institutions’ Long-Term IDRs, Viability Rating (VR) and National Ratings is a reflection of Fitch’s observation of receding near-term risks to the bank’s credit essentials from the economic fallout arising from the oil price crash and the coronavirus pandemic.

According to Fitch, in the published ratings accessed by Business A.M., the impact of the economic downward spiral on Nigeria’s leading deposit money banks’ credit profile is bearable at the current rating level and it will take several quarters before the full extent of the crisis on corporates and households is seen in their financial metrics.

“Since our previous rating action in March, regulatory forbearance on asset classification and banks’ debt relief measures have significantly eased pressures on the sector’s asset quality. Debt relief measures are, nevertheless, temporary and with the eventual easing of fiscal and monetary support from the Central Bank of Nigeria (CBN), there remains a material risk that bank asset quality could deteriorate faster, unless economic recovery gathers pace,” said Fitch.

On the outlook for the banks, Fitch revealed that the outlook on the DMBs’ Long-Term IDR reflects its position that the banks have sufficient headroom at this level to absorb moderate shocks which may arise from sustained downside risks to the operating environment, the heightened level of risk in doing banking business and resulting risks to its financial performance over the next 12 to 18 months.

However, Fitch assigned negative outlooks on Access Bank,  FBN Holding’s and FBN’s Long-Term IDRs, which is a reflection of the agency’s view of sustained downside risks to the operating environment, the heightened level of risk in doing banking business, resulting in risks to its capital, and ongoing pressures on the banks’ asset quality and earnings over the next 12-18 months.

Meanwhile, in a monitored television interview, Uche Uwaleke, a professor of capital markets and the chairman of the Abuja Branch of the Chartered Institute of Bankers of Nigeria (CIBN), said that the ratings can be attributed to the kick-starting of economic activities across the country coming from the easing of the national lockdown as well as the stability which has been seen in the Nigerian banking system over the past months from the released quarterly and annual financials of the banks.

Uwaleke also said with Nigeria now in the last quarter of the year, based on current realities, that the economy is now opened and more Nigerians are embracing financial and banking services, sufficient headroom exists to accommodate attendant risks, which may arise from pressures in doing banking business in Nigeria.