Fitch downgrades Nigerian banks, can’t meet 2020 growth

A leading rating agency, Fitch Ratings, has downgraded nine Nigerian banks from B+ to B- on the grounds of their inability to raise their credit base in the past one year.

In its latest report on its website, to mark the end of 2016 third quarter, the agency stated that the support rating floors (SRFs) of 10 of the 20 banks in Nigeria had fallen into ‘No Floor’ as compared with nine others with qualified ‘Support Ratings (SRs) to ‘5’ resulting from a reassessment of potential sovereign support for the banking sector.

The downgrade revises the position of the Nigerian banking system, which was in 2010-2014 seen occupying a position among 20 developing economies with potentials for rapid credit growth before 2020.

It named some of the banks affected by the downgrade to include: First Bank of Nigeria Limited (FBN), FBN Holdings Plc (FBNH), Diamond Bank Plc, Fidelity Bank Plc, First City Monument Bank Limited (FCMB), and Union Bank of Nigeria Plc, with the ‘B-‘ from ‘B’, which is in line with their stand-alone credit worthiness as defined by their Viability Ratings (VR).

Nigerian banks within the long-term International depository rates (IDRs) are, Zenith Bank Plc, Guaranty Trust Bank Plc (GTB), Access Bank Plc, United Bank for Africa Plc (UBA), Wema Bank Plc and Bank of Industry (BOI).

Officials of the rating outfit said “implication of the downgrade meant that more loans that could not be recovered in the next 10 years dominated the system such that creditors can no longer rely on receiving full and timely extraordinary support from the Nigerian system, if any of the banks became non-viable.”

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Fitch believes that the Nigerian authorities retain a willingness to support the banking system, but inability to do so in foreign currency is weakening due to Nigeria’s eroding foreign currency reserves/revenues, as well as limited confidence that any available foreign currency will not be used to execute other policy objectives.

The downgrade of First Bank in particular reflects both a revision of its credits base as well as its volume of credit return within a period.

It also reflects Fitch’s view that the bank’s capital base is no longer commensurate with its risk profile, reflecting questions about asset quality, particularly its level of unreserved impaired loans.

The IDRs of BOI, a state-owned policy bank, are driven by its SRF of ‘B+’ and reflect a limited probability of sovereign support. They consider its 99.9% state ownership, policy role and strategic importance to Nigeria’s economic and industrial development.

But a CBN official faulted the ratings, saying that Fitch did not put into consideration the policy thrust of the apex bank which has seen most of the banks meeting customers’ demands that are targeted at turning around the recession.
By Emma Eke….

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