December 24, 2019/Fitch Ratings
Fitch Ratings has revised the Outlooks on the Long-Term Issuer Default Ratings (IDR) of four Nigerian banks, Zenith Bank plc (Zenith), Guaranty Trust Bank plc (GTB), United Bank for Africa plc (UBA) and Bank of Industry Limited (BOI), to Negative from Stable and affirmed their IDRs at ‘B+’. The agency has also affirmed the ‘AAA(nga)’ National Ratings of Stanbic IBTC Holdings PLC and Stanbic IBTC Bank PLC.
The rating actions follow the revision of the Outlook on Nigeria’s Long-Term IDRs to Negative from Stable on 19 December 2019 (see: ‘Fitch Revises Outlook on Nigeria to Negative; Affirms at ‘B+” at www.fitchratings.com).
A full list of rating actions is at the end of this rating action commentary.
Key Rating Drivers
IDRs, VRs, SENIOR DEBT RATINGS
Zenith, GTB and UBA are the highest-rated commercial banks in Nigeria (on the international scale). The ratings are driven by their standalone creditworthiness, as defined by their respective Viability Ratings (VRs). In Fitch’s view, the VRs are capped by the Nigerian sovereign (B+/Negative) rating, given the concentration of the banks’ activities within Nigeria, including lending to the real-economy sector, and the banks’ linkage to the sovereign credit profile through significant exposure to government securities.
Fitch expects the banks’ credit profiles to be negatively affected in the event of a sovereign downgrade, particularly if this is accompanied by sharp naira devaluation. In this event, our assessment is that capital and, potentially, asset-quality metrics would be negatively impacted. Accordingly, Fitch has revised the Outlook on the Long-Term IDRs of these three banks to Negative.
BOI is a state-owned development bank and its Long-Term IDR is equalised with the Nigerian sovereign rating and driven by its Support Rating Floor (SRF) of ‘B+’, which reflects a limited probability of support from the state if required. The Negative Outlook on BOI mirrors that on the Nigerian sovereign. Our view of support considers BOI’s 99.9% state ownership, policy role and strategic importance to Nigeria’s economic and industrial development.
SUPPORT RATINGS AND SUPPORT RATING FLOORS
We have affirmed the Support Ratings and Support Rating Floors of Zenith, GTB, UBA and BOI given that our assessment of sovereign support remains unchanged.
NATIONAL RATINGS
The National Ratings reflect the issuers’ creditworthiness relative to other Nigerian issuers. The National Ratings of all banks have been affirmed, given that their creditworthiness relative to other issuers in Nigeria is not expected to change as a result of the rating action on the Nigerian sovereign.
RATING SENSITIVITIES
RATING SENSITIVITIES
The Negative Outlook on Zenith, GTB, UBA and BOI reflects our view that a sovereign downgrade would likely be accompanied by a downgrade of these issuers’ Long-Term IDRs. The ratings of Zenith, GTB and UBA are also sensitive to deterioration in operating environment and its impacts on asset quality and capitalisation.
BOI’s IDRs, Support Rating and SRF are sensitive to changes in Nigeria’s sovereign ratings. The bank’s ratings are also sensitive to a reduced propensity of the authorities to support the bank but this is not our base case.
The National Ratings are sensitive to a change in Fitch’s opinion of the banks’ creditworthiness relative to other issuers in Nigeria.
Public Ratings with Credit Linkage to other ratings
BOI’s IDRs are a equalised with Nigeria’s sovereign ratings and move in tandem with the latter.
Stanbic IBTC Holdings PLC’s and Stanbic IBTC Bank PLC’s National Ratings are driven by potential support from ultimate parent, Standard Bank Group.
ESG Considerations
The highest level of environmental, social and governance (ESG) credit relevance for BOI, GTB, UBA and Zenith, is a score of 3. This means ESG issues are credit-neutral or have only a minimal impact on the entities, either due to their nature of to the way in which they are being managed by the entities.
