Fitch’s 2009 Ratings of Nigerian Banks

Fitch Ratings
National Long-Term Rating Foreign Currency Long-Term IDR
Stanbic IBTC Bank PLC AAA(nga) NR
Guaranty Trust Bank PLC (GTB) AA-(nga) B+/Stable Outlook
Zenith Bank PLC AA-(nga) B+/Stable Outlook
First Bank of Nigeria PLC (FBN) A+(nga) B+/Stable Outlook
Intercontinental Bank PLC A+(nga) B+/Stable Outlook
United Bank For Africa PLC (UBA) A+(nga) B+/Stable Outlook
Union Bank of Nigeria PLC A+(nga) B+/Stable Outlook
Diamond Bank PLC A-(nga) B/Stable Outlook
Oceanic Bank International PLC BBB+(nga) B/Stable Outlook
Ecobank Nigeria PLC BBB-(nga) B-/Stable Outlook
Access Bank PLC BBB-(nga) NR

* NR: Not Rated



Fith Ratings | Nigerian Banking Sector: Annual Review and Outlook | Summary & Outlook:
2008 marked the end of a period of rapid expansion for the Nigerian banking sector with the onset of the global credit crisis and lower oil prices causing a weakening in the operating environment. How the sector deals with the excesses built up in recent years will be a feature for the next couple of years. However, the system-wide consolidation in 2005/2006, when the banks’ minimum capital requirements were raised significantly, has better positioned the sector to absorb these risks, and a slower period of growth would be a positive development.

Share-backed lending has emerged as an important risk consideration following the collapse in share prices since early 2008 and is going to have to be absorbed in some form. The Central Bank of Nigeria (CBN), which estimates the sector-wide
exposure to be about NGN800bn-NGN1,200bn at end-2008, has allowed banks to reschedule these obligations, without classifying them as non-performing. Sector estimates vary due to different definitions but, for the Fitch-rated banks, the exposures provided by management appear to be lower. A capital sensitivity test for Fitch-rated banks that assumes a 50% provision against estimated exposures provided by management reveals that no bank would breach minimum capital requirements and all would still have Tier 1 capital ratios above 15%. The sector average total capital adequacy ratio (CAR) was 21.9% at FYE08 with most of the Fitch-rated banks having Tier 1 capital ratios in excess of 20%.

Another area of pressure has been system liquidity. Risk aversion has seen foreign funds being withdrawn (although this was not significant in the first place) and there has been some evidence of a flight to quality due to market concerns about share lending exposures. In response, the CBN has reduced the minimum regulatory liquidity requirements on a number of occasions. While some banks may be under more pressure than others, liquidity in the system appears adequate and Fitch Ratings expects loan-to-deposit ratios to moderate as loan growth slows.

The various risk concerns in the banking system have highlighted the issue of information disclosure deficiencies. While this has improved as banks have sought to access the international capital markets, the sector still has some way to go and
is lagging other emerging markets in this respect and would benefit from the introduction of IFRS and a uniform accounting financial year.

In spite of the environment, Nigerian banks continued to report strong earnings growth in 2008 due to rapid credit growth and the agency expects growth to continue in 2009, although it will be lower. Rapid growth has masked the increasing risk in the system and we expect impaired loans to rise as the economy slows. This rapid credit growth (the highest of any country covered by Fitch during 2007/08) led to Fitch’s Macro Prudential Indicator (MPI) increasing from ‘2’ to ‘3’ in May 2009, the highest risk category. The MPI aims to identify potential for systemic stress.

Given the various issues facing the sector, the following rating actions were taken during 2008: the Outlooks on Guaranty Trust Bank Plc and Zenith Bank Plc were revised to Stable from Positive; Access Bank’s National Long-term rating was downgraded to ‘BBB-’(nga); Ecobank Nigeria Plc’s IDR was downgraded to ‘B-’ from ‘B’; and Union Bank Plc’s Individual rating was downgraded to ‘D/E’ from ‘D’. Should the risks from very rapid credit growth or the exposures to share-backed lending lead to significantly higher impairments, this could result in rating pressure.

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Funny how Oceanic Bank was among the Banks whose managers were sacked.