Operating environment constrains banks in Nigeria, Fitch says in latest ranking

Global rating agency, Fitch Ratings, has said the operations of banks in Nigeria are being constrained by the operating environment in the country.

Fitch, which stated this in its latest ranking of three tier-1 banks, Guarantee Trust Bank (GTBank), Access Bank and United Bank for Africa (UBA) also doubted the ability of the Federal Government to support banks, especially in the area of foreign exchange.

“The fragile economic recovery restrains banks’ growth prospects and asset quality. Operating conditions are still difficult for banks.

“Despite stronger oil prices in second half of 2018 (H2’18) supporting economic growth, credit demand is weak and banks face pressure on margins and capital.

“Fitch believes that sovereign support to Nigerian banks cannot be relied on given Nigeria’s weak ability to provide support, particularly in foreign currency. In addition, there are no clear messages of support from the authorities regarding their willingness to support the banking system.

“Therefore, the Support Rating Floor of all Nigerian banks is ‘No Floor’ and all Support Ratings are ‘5’. This reflects our view that senior creditors cannot rely on receiving full and timely extraordinary support from the Nigerian sovereign if any of the banks become non-viable”, Fitch said.

The expressed worry notwithstanding, the rating agency upgraded United Bank for Africa Plc’s Long-Term Issuer Default Rating (IDR) to ‘B+’ from ‘B’.

“The Outlook is Stable. UBA’s Viability Rating, VR, has been upgraded to ‘b+’ from ‘b’,” it stated.

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The outlook on GTBank’s Long Term Issuer Default Rating, IDR, was also revised to Stable from Negative and affirmed the IDR at ‘B+’ while upgrading its Long-Term National Rating to ‘AA(nga) from ‘AA-(nga)’.

“The revision of GTB’s Outlook to Stable mirrors the recent action on Nigeria’s ‘B+’ sovereign rating. The upgrade of the Long-Term National Rating reflects improvement relative to Nigerian peers,” it stated,” it stated.

For Access Bank, Fitch affirmed its Long-Term IDR at ‘B’ with a Stable Outlook.

“The Viability Rating (VR) is affirmed at ‘b’. The IDRs of Access are driven by its intrinsic creditworthiness as defined by its VR. The VR reflects Access’s position as one of the country’s largest banks with an overall domestic market share of approximately 11 percent, as well as the bank’s sound financial metrics and reasonable capital buffers, which are at the upper end of rated Nigerian banks. The VR also factors in the bank’s highly concentrated loan book,” it stated.

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