New Moody’s rates for Nigerian banks

Moody’s Investors Service, (“Moody’s”) over the weekend assigned national scale ratings (NSRs) to seven Nigerian banks.

NSRs provide a measure of relative creditworthiness within a single country, and are derived from global scale ratings (GSRs) using country-specific maps

Among these, national scale local currency deposit ratings were assigned to Zenith Bank Plc (Zenith), at Aaa.ng/NG-1; Guaranty Trust Bank Plc (GTBank) at Aa1.ng/NG-1; Access Bank Plc (Access) at Aa2.ng/NG-1; United Bank for Africa Plc (UBA) at Aa2.ng/NG-1; Sterling Bank Plc (Sterling) at A1.ng/NG-1; and First Bank of Nigeria Limited (FBN) at A2.ng/NG-1.

For Bank of Industry (BOI), a national scale local currency issuer rating was assigned at Aa1.ng/NG-1.

Zenith Bank Nigeria Plc

According to the agency, Zenith Bank’s national scale ratings capture the bank’s (1) robust capital buffers, which provide a relatively thick cushion to withstand asset quality deterioration; (2) low stock of NPLs, accounting for around 1.6 per cent of gross loans (Moody’s adjusted) as of June 2016 (against a system average of around 11.7 per cent ); (3) high liquidity buffers, complimenting a predominantly deposit funded balance sheet; and (4) a strong and well-established franchise, which allows the bank to attract inexpensive deposits and to lend to high credit quality borrowers (relative to other Nigerian banks), and resulting in relatively low NPLs and credit costs.

Guaranty Trust Bank Plc (GTBank)

Moody’s assigned Aa1.ng/NG-1 national scale local currency deposit ratings to Guaranty Trust Bank Plc (GTBank) which  is the second highest of three NSR categories corresponding to the bank’s local currency deposit GSR. It captures the bank’s (1) resilient earnings generating capacity and robust capital buffers, which together provide a relatively thick cushion to withstand asset quality deterioration compared with domestic peers; (2) high liquidity buffers and a predominantly deposit funded balance sheet; and (3) early adoption of electronic banking platforms, which has allowed it to establish a robust retail franchise.

Access Bank Nigeria Plc

Access Bank’s national scale ratings capture the bank’s (1) strong asset quality metrics with NPLs of just 2.9 per cent (Moody’s adjusted) as of June 2016 (against a system average of around 11.7 per cent); and (2) robust liquidity buffers and stable liability structure predominantly funded with deposits.

Access Bank according to Moody’s exhibits a relatively strong foreign currency liquidity position, a factor recently supported by the closing of its third Eurobond transaction of €300 million. “We view Access Bank as being well placed to navigate the increasingly challenging foreign currency liquidity environment in Nigeria relative to peers,” the agency said.

United Bank for Africa Plc

Moody’s assigned Aa2.ng/NG-1 national scale local currency deposit ratings to United Bank for Africa Plc (UBA), capturing the bank’s (1) resilient asset quality profile, which is more geographically diversified than most of its peers (Moody’s adjusted NPL ratio as of end-June 2016, was just 2.4 per cent versus 11.7 per cent for the banking system); and (2) predominantly deposit funded balance sheet, which is supported by a solid pan-African franchise.

“The bank also exhibits amongst the lowest NPLs in the banking system, a reflection of the bank’s relatively rigorous underwriting standards,” it further stated.

Sterling Bank Plc

According to the agency, Sterling’s national scale ratings capture the bank’s (1) solid asset quality metrics (reported NPL ratio of 2.8 per cent as of end-June 2016 versus 11.7 per cent for the banking system) and provision coverage; and (2) solid deposit funding base.

It says these strengths are balanced against (3) low foreign currency liquidity buffers, which underpin the lower national scale foreign currency deposit rating compared with its local currency deposit national scale rating among others.

First Bank of Nigeria Limited

FBN’s national scale ratings according to Moody’s capture the bank’s (1) high and resilient pre-provision profitability, with the half year (H1) 2016 annualised pre-provision profits amounting to around 4.7 per cent of total assets; and (2) stable, deposit-based funding structure and high liquidity buffers in local currency. These strengths are balanced against the bank’s (3) deteriorating asset quality metrics, with NPLs accounting for around 23 per cent of gross loans as of June 2016 (against a system average of around 11.7 per cent), reflecting historically weak underwriting standards and the currently challenging operating domestic environment as well as modest capitalisation buffers.

Bank of Industry

Moody’s assigned Aa1.ng/NG-1 national scale local and foreign currency issuer ratings to BOI. These ratings are underpinned by a standalone credit assessment of b2 and one notch of government support uplift, which results in a global scale long-term issuer rating of B1. The Aa1.ng rating is the second highest of three NSR categories corresponding to BOI’s GSR.

BoI’s national scale ratings capture the bank’s (1) robust capital buffers, with an equity to assets ratio of 30 per cent as of Dec 2015; (2) stable liability structure made up of long-term funding at concessional rates; and (3) tangible improvements to governance and risk positioning in recent years.

With fewer than 20 fundamental issuers in Nigeria rated by Moody’s, the NSR map has been designed using Moody’s standard approach, whereby the map design is selected from a set of standard maps based upon the anchor point, or the lowest GSR that can map to a Aaa.ng. As per the standard approach, Nigeria’s anchor point is set at B1, on par with the sovereign rating.