Fitch has affirmed the Long-term Issuer Default Ratings (IDRs) of 10 Nigerian banks. They are Zenith Bank Plc, FBN Holdings Plc, First Bank of Nigeria Ltd (FBN), United Bank for Africa Plc (UBA), Guaranty Trust Bank Plc (GTB), Access Bank Plc, Diamond Bank Plc, Fidelity Bank Plc, Union Bank Plc and First City Monument Bank Limited (FCMB). All Outlooks are Stable. Fitch has also affirmed the National Ratings of Stanbic IBTC Bank Plc (SIBTC) and Stanbic IBTC Holdings Plc.
The ratings are all in the ‘B’ range, indicating highly speculative fundamental credit quality, and factor in Fitch’s expectation of increasingly challenging economic conditions and market volatility in Nigeria. The operating environment is affected by persistently low oil prices, continuing pressure on the domestic currency, the naira, likely further monetary policy and regulatory actions and increased political uncertainty. At the same time, the ratings are underpinned by continued strong underlying economic growth in Nigeria, particularly in non-oil sectors. Fitch expects non-oil GDP growth of 5.5% in 2015 (2014: 7.5%), driven by continued economic reforms and limited impact from public sector austerity.
According to Fitch, Zenith’s, FBNH’s, GTB’s and Access’ IDRs are driven by their standalone strength as measured by their Viability Ratings (VRs). In assessing the probability of sovereign support, Fitch considers the authorities’ willingness to support the Nigerian banks to be high as demonstrated in the past, but its ability to do so may be constrained by Nigeria’s ‘BB-’ sovereign rating. Fitch assigns Support Rating Floors (SRFs) based on each bank’s systemic importance.
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The most systemically important banks in Fitch’s view are FBN, Zenith and UBA, which are assigned SRFs of B+’. The other banks have SRFs of ‘B’. FBNH is the holding company of FBN. Its SR of ‘5’ and SRF of ‘No Floor’ reflect Fitch’s views that while the Nigerian authorities’ propensity to support local banks is high; the same level of support would not apply to holding companies. The ratings may however be affected by some factors, Fitch said. The ratings and Outlooks are sensitive to a prolonged and severe recession that would affect the ability or willingness of the Nigerian authorities to provide support. The recent oil price shock and subsequent currency pressure has weakened the Nigerian operating environment and is likely to result in lower GDP growth in 2015. In turn, the banks are likely to report weaker profitability, asset quality and capital ratios, according to Fitch. “These pressures are to an extent captured in Fitch’s ratings, and partly explain the Stable Outlooks. Never- the less, should the operating environment deteriorate faster than expected, particularly should it significantly impact the banks’ capital and asset quality, VR downgrades cannot be ruled out,” Fitch said. Fitch forecasts sector non-performing loans (NPLs) to rise above the Central Bank of Nigeria’s (CBN) informal cap of 5 per cent, but below 10 per cent by the end-2015. This reflects high credit concentrations as well as emerging risks, particularly in the oil and gas, and power sectors. “These factors, together with a shift to Basel II and CBN’s revised regulatory capital computation rules, are likely to add more pressure on capital than previously expected,” Fitch said.
