- lowers SRFs for 10 banks
By Odunewu Segun
Fitch Ratings has revised down the Support Rating Floors (SRFs) of 10 Nigerian banks to ‘No Floor’ and downgraded nine banks’ Support Ratings (SRs) to ‘5’ following a reassessment of potential sovereign support for the banking sector.
Consequently, First Bank of Nigeria Limited, FBN Holdings Plc, Diamond Bank Plc, Fidelity Bank Plc, First City Monument Bank Limited and Union Bank of Nigeria Plc have all been downgraded to ‘B-‘ from ‘B’ due to their stand-alone credit worthiness as defined by their Viability Ratings.
Fitch also affirmed the Long-Term IDRs of Zenith Bank Plc, Guaranty Trust Bank Plc (GTB), Access Bank Plc, and United Bank for Africa Plc (UBA), Wema Bank Plc and Bank of Industry (BOI).
The downgrade of the nine banks’ SRs and the revision of 10 banks’ (including Wema) SRFs to ‘No Floor’ reflects Fitch’s view that senior creditors can no longer rely on receiving full and timely extraordinary support from the Nigerian sovereign if any of the banks become non-viable.
Fitch believes that the Nigerian authorities retain a willingness to support the banks, but its ability to do so in foreign currency is weakening due to Nigeria’s eroding foreign currency reserves/ revenues, as well as limited confidence that any available foreign currency will not be used to execute other policy objectives.
The Long-Term IDRs of Diamond, Fidelity, FCMB and Union are downgraded to ‘B-‘ as they are now underpinned by their VRs of ‘b-‘ rather than their SRFs, as was previously the case.
Fitch has also downgraded the National Long-Term Ratings of Diamond, Fidelity, FCMB and Union, to ‘BBB (nga)’ from ‘BBB+(nga)’ following the rating actions on their Long-Term IDRs. The National Long-Term ratings of FBN and FBNH have also been downgraded to ‘BBB (nga)’ from ‘A+(nga)’ and ‘BBB+(nga)’, respectively. This also follows the downgrade of their Long-Term IDRs.
Fitch is monitoring the banks’ ability to meet maturing foreign-currency obligations. In the current difficult market conditions, Fitch believes the banks are face challenges to refinance existing obligations and/or obtain foreign exchange from the Central Bank of Nigeria to meet maturing obligations.
The new foreign-exchange regime has provided limited respite in accessing foreign currency in the interbank market. FX forward contracts provided by the central bank since June 2016 have helped reduce large overdue trade finance obligations, which were either extended or refinanced with international correspondent banks.
Fitch expects banks to remain profitable in 2016 despite slower asset growth and higher loan impairment charges, due to still strong earnings generation and, for most banks, potential exchange gains from long foreign-currency positions.
According to the report, Zenith and GTB have the highest VRs in the sector at ‘b+’, reflecting their relatively strong and resilient franchises and sound financial metrics compared to peers through the cycle.
Access and UBA have VRs of ‘b’. These reflect good financial metrics compared to peers and relatively good franchises. They also consider weaker earnings and lower capital buffers than higher-rated peers.