Fitch Ratings earlier this month decided to uphold Ecobank Nigeria Limited’s (ENG) Long-Term Issuer Default Rating (IDR) at ‘B-‘ and its Viability Rating (VR) at ‘b-‘, both under Rating Watch Negative (RWN).
This decision comes on the heels of a recent verdict by the Federal High Court of Nigeria concerning an extended legal dispute involving one of ENG’s corporate clients.
The existing RWN already accounted for the potential risks associated with the bank’s minimum total capital adequacy ratio (CAR) or its capital-to-risk ratio requirement, attributed to the impact of the devaluation of the naira and other challenges in the economy on capital and asset quality.
This watchlist status now also adds to the several challenges Ecobank Nigeria’s businesses and finances face, especially its capitalization, arising from the recent court judgment.
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The Federal High Court of Nigeria ruled in favour of the plaintiff, demanding Ecobank Nigeria to pay N72.2 billion in damages. Although Ecobank Nigeria has initiated an appeal against this decision, the final resolution timeline remains uncertain.
Fitch said that the magnitude of these damages, accounting for 31 percent of Ecobank Nigeria total regulatory capital as of the end of 2022, could potentially breach the bank’s CAR requirement if the judgment stands.
The rating agency anticipates that the RWN will persist until there is more clarity surrounding the outcome of the legal dispute and its potential repercussions for the financial group. Furthermore, the evaluation also considers the eventual impact of naira devaluation on the banks’ capital ratios and asset quality. “If the legal dispute extends beyond six months, the Rating Watch Negative might be prolonged,” the rating agency said.
