Fitch Ratings has revised the Outlook on the Long-Term Issuer Default Ratings (IDRs) of five Nigerian banks and one bank holding company to positive from stable.
The Long-Term IDRs have also been affirmed at ‘B-‘.
The affected issuers are Access Bank Plc, Zenith Bank Plc, United Bank for Africa Plc (UBA), Guaranty Trust Bank Limited (GTB), Guaranty Trust Holding Company Plc (GTCO) and Bank of Industry Limited (BOI). A full list of rating actions is below.
The revision of the Outlooks on the Long-Term IDRs of Access Bank, Zenith Bank, UBA, GTB and GTCO mirrors the recent sovereign Outlook revision and reflects Fitch’s view that Nigeria’s Long-Term IDRs are likely to represent less of a constraint on the issuers’ standalone creditworthiness in the near term.
The revision of the Outlook on BOI’s Long-Term IDR reflects our view that the government’s ability to provide support to the policy bank is likely to improve.
Fitch revised the Outlook on Nigeria’s Long-Term IDRs to positive on May 3, 2024.
The revision partly reflected government reforms over the last year to support the restoration of macroeconomic stability and enhance policy coherence and credibility. Exchange rate and monetary policy frameworks have been adjusted, fuel subsidies reduced, coordination between the ministry of finance and the Central Bank of Nigeria (CBN) improved, central bank financing of the government scaled back and administrative efficiency measures are being taken to raise the currently low government revenue, as well as oil production.
The issuers’ National Ratings are unaffected by the event. As a policy bank, BOI’s Government Support Rating (GSR) has been affirmed at ‘b-‘. The GSRs of the other issuers are unaffected.
Key Rating Driver
The Long-Term IDRs of Access Bank, Zenith Bank, UBA, GTB and GTCO are driven by their standalone creditworthiness, as expressed by their Viability Ratings (VR) of ‘b-‘. The VRs are constrained by Nigeria’s Long-Term IDRs due to high sovereign exposure in the form of fixed-income securities and cash reserves and FX swaps with the CBN relative to capital.
The VRs also capture the issuers’ strong business profiles, characterised by sizeable market shares and revenue diversification, in addition to strong profitability, and large capital and foreign-currency (FC) liquidity buffers.
The Positive Outlooks on the Long-Term IDRs mirror that on the sovereign.
The VRs of Zenith Bank, UBA, GTB and GTCO remain one notch below their implied VRs of ‘b’, reflecting the operating environment/sovereign rating constraint.
Operating conditions remain challenging despite the sovereign Outlook revision, with implemented reforms presenting significant near-term credit and market risks to the banking sector.
The Nigerian naira has devalued by over 65% against the US dollar since end-May 2023, exerting pressure on the banking sector’s capitalisation and heightening credit concentration risks, and the FX market has yet to stabilise.
Inflation (March: 33.2%) has accelerated, partly due to exchange rate pass-through and rising food prices, and is forecast to remain high in the near term (2024: 26.3%).