S&P lowers 6 banks’ ratings citing economic risks

Standard and Poor (S&P), Global Ratings on Friday lowered its long-term counterparty credit ratings on six Nigerian banks after reviewing 9 lenders and one holding company.

The rating actions S&P said, reflect the view that economic risk in the Nigerian banking system has increased due to the weak economic environment in Nigeria, arising from  low oil prices, a restrictive foreign exchange regime, and delayed fiscal stimulus.

In its latest report, the agency said it  lowered long-term counterparty credit ratings on top lenders as follows: Access Bank PLC (ABC), to ‘B’ from ‘B+’;  Guaranty Trust Bank PLC (GTB), to ‘B’ from ‘B+’;  Stanbic IBTC Bank PLC (Stanbic), to ‘B’ from ‘B+’; Zenith Bank PLC (ZNB), to ‘B’ from ‘B+’;  Ecobank Nigeria Ltd. (ECN) to ‘B’ from ‘B+’;  Fidelity Bank PLC (FID), to ‘B-’ from ‘B’ and  First City Monument Bank (FCMB), to ‘B-’ from ‘B’.

According to S&P, the lowering of the rating on Ecobank (ECN) reflects the fact that that the group’s diversification has not protected the operations from Nigeria’s downturn and “we expect financial performance will be negatively affected by the volatility of its operating environment.”

It said the lowering of the ratings on Fidelity reflects our view that the challenging economic and operating environment in Nigeria will impact mid-tier banks’ financial performance more than top-tier banks’, owing to their weaker business position and more expensive funding.

“For Fidelity, we think that credit losses will increase to around two to three per cent, still below the system average. The expected deterioration in the bank’s financial profile is now factored in to the ratings; hence the outlook is now stable,” the report stated.

On FCMB, it said the lowering of the ratings reflects the view that the bank’s asset quality is vulnerable to the economic downturn in Nigeria because of its significant credit concentrations by sector, single-obligor, and foreign currency, alongside the higher exposure to retail lending compared with peers (albeit salary backed).

It further said that the lowering of the ratings on Access Bank, GTB, and Zenith reflects the opinion that the heightened economic risks in Nigeria will weigh on these banks’ financial performance and increase their credit losses.

While the agency expects pressure on their earnings in 2016-2017, it anticipates that they will be able to maintain better asset quality and lower cost of risk than the sector average. Access, GTB, and Zenith have access to top-tier corporate clients and low-cost deposits in Nigeria, and have demonstrated stronger underwriting skills and management of their foreign currency liquidity than the sector average according to S&P.

Also, the lowering of the ratings on Stanbic reflects the expectation that the bank’s asset quality will weaken due to the economic downturn in Nigeria. The agency said it believes that Stanbic is better-placed to withstand economic shocks than most of the mid-tier banks, thanks to expected parental support from the Standard Bank Group (SBG) Ltd.

“Our assessment of industry risk for Nigerian banks is unchanged, and we maintain our view that its trend is negative. We note that foreign currency reserves have fallen to $26.2 billion in 2016 compared with $34.2 billion in 2015 and that banks have foreign exchange orders amounting to about 15 per cent of the Central Bank of Nigeria’s international reserves, partly to settle letters of credit opened on behalf of their customers,” it read in part.