Sterling, UBA, Zenith, BoI, 3 others get Moody’s national scale ratings

Moody’s Investors Services has assigned national scale ratings (NSRs) to six Nigerian banks, including Sterling Bank Plc.

Other banks that national scale local currency deposit ratings were assigned include Zenith Bank Plc, Guaranty Trust Bank Plc (GTBank), Access Bank Plc, United Bank for Africa Plc (UBA), First Bank of Nigeria Limited, and the Bank of Industry (BoI).

This rating action, according to a statement from Moody’s, follows the publication of new national scale rating maps for Nigeria, Kenya and Morocco, which provide a measure of relative creditworthiness within a single country, and are derived from global scale ratings using country-specific maps.

The global rating agency assigned A1.ng/NG-1 national scale local currency deposit ratings to Sterling Bank. These ratings were underpinned by a standalone baseline credit assessment (BCA) of b3 and one notch of government support uplift, which results in a global scale long-term issuer and deposit rating of B2. Moody’s also assigned A2.ng/NG-1 national scale foreign currency deposit ratings to Sterling Bank.

According to Moody’s, “the A1.ng rating is the second highest of three national scale ratings categories corresponding to the bank’s local currency deposit global scale ratings.

“Sterling Bank’s national scale ratings capture the bank’s solid asset quality metrics (reported non-performing loans ratio of 2.8 percent as at end-June 2016 versus 11.7 percent for the banking system), provision coverage and solid deposit funding base.”

These strengths are balanced against low foreign currency liquidity buffers, which underpin the lower national scale foreign currency deposit rating compared with its local currency deposit national scale rating; vulnerabilities in asset quality; and relatively modest capital levels.

Commenting on the rating outcome, Abubakar Suleiman, executive director, Finance and Strategy, said the ratings affirm the bank’s business model and resilience amid challenging operating conditions. He further noted that the bank’s solid asset quality metrics reflected a robust risk management framework put in place by the Bank.

NSRs for all rated Nigerian banks will face upward or downward pressure if their corresponding Global Scale Ratings (GSRs) are upgraded or downgraded, unless this is in conjunction with a sovereign rating action that results in a recalibration of the national scale with an offsetting impact on NSRs according to Moody’s

Explaining the rating for the GTBank, Moody’s noted that “GTBank’s national scale ratings capture the bank’s resilient earnings generating capacity and robust capital buffers, which together provide a relatively thick cushion to withstand asset quality deterioration compared with domestic peers; high liquidity buffers and a predominantly deposit funded balance sheet, and early adoption of electronic banking platforms, which has allowed it to establish a robust retail franchise.

“These strengths are partially moderated by concentration risks in the bank’s loan book, including to the oil and gas industry (39.2% of gross loans) and loans denominated in foreign currency (55.6% of gross loans).”

On Access Bank, the rating agency noted that “Access’ national scale ratings capture the bank’s strong asset quality metrics with NPLs of just 2.9% (Moody’s adjusted) as of June 2016 (against a system average of around 11.7%), and  robust liquidity buffers and stable liability structure predominantly funded with deposits. These strengths are balanced against concentration risks in the bank’s loan book, including to the oil and gas industry (28% of gross loans) and loans denominated in foreign currency (49.5% of gross loans).”

Moody also gave its rational for its rating of the other banks.

“UBA’s national scale ratings capture the bank’s  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% versus 11.7% for the banking system); and  predominantly deposit funded balance sheet, which is supported by a solid pan-African franchise.”

On FBN’s national scale ratings, Moody noted that it captures the bank’s  high and resilient pre-provision profitability, with the first half of 2016 annualised pre-provision profits amounting to around 4.7% of total assets; and  stable, deposit-based funding structure and high liquidity buffers in local currency. These strengths are balanced against the bank’s deteriorating asset quality metrics, with NPLs accounting for around 23% of gross loans as of June 2016 (against a system average of around 11.7%), reflecting historically weak underwriting standards and the currently challenging operating domestic environment, as well as significant exposures to the troubled oil and gas sector and a high proportion (over 50%) of foreign currency lending. These exposures make FBN relatively more sensitive to downside risk scenarios than its immediate domestic peers; tight foreign currency liquidity (borrowings from correspondent banks declined to N14 billion in 2015 from N188 billion in 2014); and modest capitalization buffers.

BoI’s, which also made the rating scale, Moody noted that the national scale ratings capture the bank’s robust capital buffers, with an equity to assets ratio of 30% as of December 2015; stable liability structure made up of long-term funding at concessional rates; and tangible improvements to governance and risk positioning in recent years. These strengths are balanced against our projection that asset quality will be increasingly pressured given the loan growth strategy that the bank is pursuing, particularly in the micro, small and medium-sized enterprises (MSMEs) segment, which may expose the bank to riskier assets.