Culled—-Proshare
September 23, 2016/ S & P Global Ratings
Overview
Nigeria’s economy has weakened more than we expected, owing to a marked contraction in oil production, a restrictive foreign exchange regime, and delayed fiscal stimulus.
Consequently, on Sept. 16, 2016, we lowered our long-term ratings on Nigeria to ‘B’ from ‘B+’.
We believe that economic risks have increased for the Nigerian banking industry and that the government’s propensity to support the banking system is now uncertain.
We are therefore taking various rating actions on the Nigerian banks that we rate.
Rating Action
S&P Global Ratings today took various rating actions on the 9 Nigerian banks and one holding company it rates. For the complete list of rating actions, including those on the Nigerian national scale, please see the “Ratings List” section.
We lowered our long-term counterparty credit ratings on the following six Nigerian banks:
Access Bank PLC (ABC), to ‘B’ from ‘B+’.
Guaranty Trust Bank PLC (GTB), to ‘B’ from ‘B+’.
Stanbic IBTC Bank PLC (Stanbic), to ‘B’ from ‘B+’.
Zenith Bank PLC (ZNB), to ‘B’ from ‘B+’.
Ecobank Nigeria Ltd. (ECN) to ‘B’ from ‘B+’.
Fidelity Bank PLC (FID), to ‘B-‘ from ‘B’.
First City Monument Bank (FCMB), to ‘B-‘ from ‘B’.
We have a negative outlook on ECN. Our outlook on the other five banks listed above is stable.
For the above banks we have, where appropriate, also lowered all issue ratings by one notch.
We also affirmed our ‘B-/C’ long- and short-term counterparty credit ratings on FirstBank of Nigeria Ltd. (Firstbank) and FBN Holdings PLC (FBN). We removed these ratings from CreditWatch negative where we had placed them on June 22, 2016. The outlook is negative.
Our ‘B-‘ long-term counterparty credit rating on Diamond Bank PLC (DB) remains on CreditWatch with negative implications, where we placed it on June 22, 2016.
Rationale
These rating actions reflect our view that economic risk in the Nigerian banking system has increased due to the weak economic environment in Nigeria, on the back of low oil prices, a restrictive foreign exchange regime, and delayed fiscal stimulus.
The Nigerian economy (oil and non-oil) contracted in the first two quarters of 2016 since the oil sector suffered from a combination of low prices and decline in production, while the non-oil sector was hit by the shortage of foreign currency.
Finally, the fiscal stimulus which the authorities intended to implement through the 2016 budget was delayed by the legislative process. We therefore now consider the Nigerian economy and banking sector are in a correction phase.
We are expecting a contraction in real GDP growth of 1% in 2016 and feeble growth of 2% in 2017. We also anticipate nominal credit growth to moderate to 3%-4% in 2016-2017 compared with 27% in 2013-2014 and believe that credit losses will hover around 3%-4% in 2016-2017 compared with 2.7% in 2015.
Our assessment of industry risk for Nigerian banks is unchanged, and we maintain our view that its trend is negative. We note that foreign currency reserves have fallen to $26.2 billion in 2016 compared with $34.2 billion in 2015 and that banks have foreign exchange orders amounting to about 15% of the Central Bank of Nigeria’s international reserves, partly to settle letters of credit opened on behalf of their customers.
We have also now classified the Nigerian government support as uncertain, instead of supportive. This change reflects our opinion that the Central Bank has not been supporting the U.S. dollar needs of the local banking sector, which has put a strain on foreign currency liquidity for banks and delayed the payments of trade obligations. On the other hand, we expect the Central Bank to be supportive in terms of naira liquidity for domestic banks.
The impact of increased banking industry risks on our individual bank ratings varies depending on our assessment of factors underpinning each bank’s stand-alone credit profile (SACP) and external support.
Access Bank Plc, Guaranty Trust Bank Plc, and Zenith Bank Plc
The lowering of the ratings on Access Bank, GTB, and Zenith reflects our opinion that the heightened economic risks in Nigeria will weigh on these banks’ financial performance and increase their credit losses.
While we expect pressure on their earnings in 2016-2017, we anticipate that they will be able to maintain better asset quality and lower cost of risk than the sector average. Access, GTB, and Zenith have access to top-tier corporate clients and low-cost deposits in Nigeria, and have demonstrated stronger underwriting skills and management of their foreign currency liquidity than the sector average.
The stable outlook on these banks reflects that on the sovereign, and our expectation that their business and financial profiles will remain broadly stable in the next 12 months. We would lower the ratings on these banks if we lowered the ratings on Nigeria or if their asset quality indicators deteriorated beyond our expectations. An upgrade is conditional on a similar rating action on the sovereign, as well as an improvement of the banks’ SACPs.
Stanbic IBTC Plc
The lowering of the ratings on Stanbic reflects our expectation that the bank’s asset quality will weaken due to the economic downturn in Nigeria. We believe Stanbic is better-placed to withstand economic shocks than most of the mid-tier banks, thanks to expected parental support from the Standard Bank Group (SBG) Ltd.
We consider Stanbic to be strategically important to SBG, and we therefore factor in one notch of group support above the SACP or unsupported group credit profile (GCP) of Stanbic IBTC, which we assess at ‘b-‘. The outlook is stable and reflects that on Nigeria and our expectation of group support.
We would lower the ratings if we lowered the ratings on Nigeria or if we observed a significantly lower likelihood of extraordinary support from SBG. An upgrade would be conditional on a similar rating action on the sovereign, all other factors remaining unchanged.
Ecobank Nigeria Ltd. (ECN)
The lowering of the rating on ECN reflects our views that the group’s diversification has not shielded the operations from Nigeria’s downturn and we expect financial performance will be negatively affected by the volatility of its operating environment.
The negative outlook is underpinned by the bank’s concentrated dollar funding mix and pressure on the capital adequacy ratio, which is just above the regulatory minimum. We would lower the ratings on the bank by more than one notch if it breached its minimum regulatory requirement.
This could happen if the bank’s loss experience undermined its earnings generation beyond our current expectations and group support was not forthcoming. We would revise the outlook to stable if we saw material improvement in capitalization, asset quality, or liquidity, which could occur in the context of a more supportive macroeconomic environment.
Despite recent improvements, U.S. dollar funding concentrations and outstanding trade obligations represent a risk to ECN’s stability, in our view. While we believe that group support will help maintain depositor confidence above that of peers in the Nigerian banking system and provide necessary dollar liquidity, there could be a capacity and timeliness issue with such support.
On June 30, 2016, ECN had a regulatory capital adequacy of 15.1%, only 0.1% above the regulatory requirement. We anticipate that the bank’s capital management planning and expected future profitability will keep the bank above minimum regulatory capital adequacy, unless another external shock occurs.
The ratings on ECN reflect the creditworthiness of the wider Ecobank Group, since we consider ECN to be core to the group, taking into account the importance of Nigeria in the group’s strategy and the material size of ECN, which represented 33% of total assets and 56% profits as of June 30, 2016.
Fidelity Bank
The lowering of the ratings on Fidelity reflects our view that the challenging economic and operating environment in Nigeria will impact mid-tier banks’ financial performance more than top-tier banks’, owing to their weaker business position and more expensive funding.
For Fidelity, we think that credit losses will increase to around 2%-3%, still below the system average. The expected deterioration in the bank’s financial profile is now factored in to the ratings; hence the outlook is now stable.
We could lower the rating if we were to take a similar action on the sovereign or if the bank breached the minimum capital adequacy ratio or showed higher credit losses than peers. An upgrade is conditional on a similar rating action on the sovereign and the bank showing resilience compared with peers, with an improvement in its SACP.
First City Monument Bank Plc (FCMB)
The lowering of the ratings on FCMB reflects our view that the bank’s asset quality is vulnerable to the economic downturn in Nigeria because of its significant credit concentrations by sector, single-obligor, and foreign currency, alongside the higher exposure to retail lending compared with peers (albeit salary backed).
In general, we think that FCMB’s management of its foreign currency balance sheet is sound, with a small negative net open position in the banking book, which was less than 5% of shareholders’ funds at year-end 2015, and the bank has high levels of cash coverage over short-term liabilities denominated in foreign currencies.
The stable outlook reflects our expectation that FCMB will maintain a broadly stable business and financial position, with a cost of risk in line with the sector average over the next 12 months.
We could lower the rating if we were to take a similar action on the sovereign or if the bank showed higher credit losses than peers. An upgrade is conditional on a similar rating action on the sovereign and the bank showing resilience compared with peers, with an improved SACP.
First Bank of Nigeria Ltd. (FIRSTBANK), FBN holdings Plc (FBNH)
The affirmation and removal from CreditWatch reflect our views that the immediate pressure on the bank’s regulatory capital ratio has partly receded and the bank’s steps to address gaps in its risk management framework and hiring of a new group Chief Risk Officer.
We therefore believe that FirstBank’s business position has improved. We also now believe that the bank will operate with a slightly higher ratio than the 15% minimum capital adequacy requirement in the next 12 months through the capitalization of its earnings.
However, we expect FirstBank’s cost of risk to remain high at about 5% over the next 12-18 months and nonperforming loans to increase to around 22% compared with our estimate of 6% for the sector on average in 2016.
The negative outlook reflects the possibility of a downgrade if FirstBank breaches its minimum regulatory requirement. This could happen if the bank’s loss experience undermines its earnings generation beyond our current expectations. We would revise the outlook to stable if the bank managed to build up a capital buffer and more stable earnings.
Our ratings on FirstBank’s holding company FBNH are at the same level as the ratings on FirstBank, reflecting the absence of debt at the holding company level.
Under our criteria, we generally notch down from the GCP to reflect the structural subordination of the non-operating holding company (NOHC) and its exposure to potential regulatory intervention.
Nevertheless, in FBNH’s case, we take comfort from the absence of debt at the holding company level and believe that the risk of default of the NOHC is not commensurate with the ‘CCC’ rating category.
The outlook on FBNH is negative and reflects that on FirstBank. We would lower the ratings on the FBNH if we lowered the ratings on FirstBank or if we saw any emergence of leverage at the NOHC level.
We would revise the outlook to stable if we took a similar action on FirstBank and there was no pressure on FBNH’s financial profile.
Diamond Bank Plc (DIAMOND)
The long-term ratings remain on CreditWatch negative because we think that immediate pressure on Diamond’s capital adequacy and foreign currency liquidity remains high in light of the bank’s significant deterioration in asset quality indicators and high foreign currency lending and funding concentration.
That said, Diamond has a leading franchise position in retail and small business banking in Nigeria. This segment has helped Diamond acquire new customers, increase transaction volumes–especially through electronic channels–and sustain funding costs at around 3%, one of the lowest in the sector. As a result, we believe that its business position has improved.
We aim to resolve the CreditWatch within the next 90 days, during which time we will assess the bank’s foreign currency contractual liquidity mismatch and the impact of the last naira devaluation on the bank’s capital adequacy ratio.
Bicra Score Snapshot*
Nigeria To From
BICRA Group 10 9
Economic risk 10 9
Economic resilience Extremely High Very High
Risk Risk
Economic imbalances High Risk High Risk
Credit risk in the economy Extremely High Extremely High
Risk Risk
Trend Stable Negative
Industry risk 9 9
Institutional framework Extremely High Extremely High
Risk Risk
Competitive dynamics High Risk High Risk
Systemwide funding Very High Risk Very High Risk
Trend Negative Negative
*Banking Industry Country Risk Assessment (BICRA) economic risk and industry risk scores are on a scale from 1 (lowest risk) to 10 (highest risk). For more details on our BICRA scores on banking industries across the globe, please see “Banking Industry Country Risk Assessment Update,” published monthly on RatingsDirect.
Banks Ratings Score Snapshot
To From
Access Bank PLC
Issuer Credit Rating B/Stable/B B+/Negative/B
SACP b b+
Anchor b b+
Business Position Adequate (0) Adequate (0)
Capital and Earnings Moderate (0) Moderate (0)
Risk Position Adequate (0) Adequate (0)
Funding and Above Average (0) Above Average (0)
Liquidity and Adequate and Adequate
Support 0 0
GRE Support 0 0
Group Support 0 0
Sovereign Support 0 0
Short-Term Support 0 0
Additional Factors 0 0
Diamond Bank PLC
Issuer Credit Rating B-/Watch Neg/C B-/Watch Neg/C
SACP b- b-
Anchor b b+
Business Position Adequate (0) Moderate (-1)
Capital and Earnings Weak (0) Weak(0)
Risk Position Moderate (-1) Moderate(-1)
Funding and Average and Average and
Liquidity Adequate (0) Adequate (0)
Support 0 0
GRE Support 0 0
Group Support 0 0
Sovereign Support 0 0
Short-Term Support 0 0
Additional Factors 0 0
Ecobank Nigeria Ltd
Issuer Credit Rating B/Negative/B B+/Negative/B
SACP b b+
Anchor b+ b+
Business Position Adequate (0) Strong (+1)
Capital and Earnings Weak (0) Weak(0)
Risk Position Moderate (-1) Moderate (-1)
Funding and Average & Above Average &
Liquidity Adequate (0) Adequate(0)
Support 0 0
GRE Support 0 0
Group Support 0 0
Sovereign Support 0 0
Short-Term Support 0 0
Additional Factors
Fidelity Bank PLC
Issuer Credit Rating B-/Stable/C B/Negative/B
SACP b- b
Anchor b b+
Business Position Moderate (-1) Moderate (-1)
Capital and Earnings Moderate (0) Moderate (0)
Risk Position Adequate (0) Adequate(0)
Funding and Average & Average &
Liquidity Adequate (0) Adequate (0)
Support 0 0
GRE Support 0 0
Group Support 0 0
Sovereign Support 0 0
Short-Term Support 0 0
Additional Factors 0 0
First Bank of Nigeria Ltd.
Issuer Credit Rating B-/Negative/C B-/Watch Neg/C
SACP b- b-
Anchor b b+
Business Position Adequate (0) Moderate (-1)
Capital and Earnings Weak (0) Weak (0)
Risk Position Moderate (-1) Moderate (-1)
Funding and Above Average & Above Average &
Liquidity Adequate (0) Adequate (0)
Support 0 0
GRE Support 0 0
Group Support 0 0
Sovereign Support 0 0
Short-Term Support 0 0
Additional Factors 0 0
First City Monument Bank PLC
Issuer Credit Rating B-/Stable/C B/Negative/B
SACP b- b
Anchor b b+
Business Position Moderate (-1) Moderate (-1)
Capital and Earnings Weak (0) Weak(0)
Risk Position Adequate (0) Adequate(0)
Funding and Average & Average &
Liquidity Adequate (0) Adequate (0)
Support 0 0
GRE Support 0 0
Group Support 0 0
Sovereign Support 0 0
Short-Term Support 0 0
Additional Factors 0 0
Guaranty Trust Bank PLC
Issuer Credit Rating B/Stable/B B+/Negative/B
SACP b b+
Anchor b b+
Business Position Adequate (0) Adequate(0)
Capital and Earnings Moderate (0) Moderate(0)
Risk Position Adequate (0) Adequate(0)
Funding and Above Average & Above Average &
Liquidity Adequate (0) Adequate(0)
Support 0 0
GRE Support 0 0
Group Support 0 0
Sovereign Support 0 0
Short-Term Support 0 0
Additional Factors 0 0
Stanbic IBTC Bank
Issuer Credit Rating B/Stable/B B+/Negative/B
SACP b- b
Anchor b b+
Business Position Moderate (-1) Moderate (-1)
Capital and Earnings Moderate (0) Moderate (0)
Risk Position Adequate (0) Adequate (0)
Funding and Average & Average &
Liquidity Adequate (0) Adequate (0)
Support 0 0
GRE Support 0 0
Group Support +1 +1
Sovereign Support 0 0
Short-Term Support 0 0
Additional Factors 0 0
Zenith Bank PLC
Issuer Credit Rating B/Stable/B B+/Negative/B
SACP b b+
Anchor b b+
Business Position Adequate (0) Adequate (0)
Capital and Earnings Moderate (0) Moderate (0)
Risk Position Adequate (0) Adequate (0)
Funding and Above Average & Above Average &
Liquidity Adequate (0) Adequate (0)
Support 0 0
GRE Support 0 0
Group Support 0 0
Sovereign Support 0 0
Short-Term Support 0 0
Additional Factors 0 0
Related Criteria and Research
Related Criteria
General Criteria: Criteria For Assigning ‘CCC+’, ‘CCC’, ‘CCC-‘, And ‘CC’ Ratings – October 01, 2012
Criteria – Financial Institutions – Banks: Bank Hybrid Capital And Nondeferrable Subordinated Debt Methodology And Assumptions – January 29, 2015
Criteria – Financial Institutions – Banks: Revised Market Risk Charges For Banks In Our Risk-Adjusted Capital Framework – June 22, 2012
Criteria – Financial Institutions – Banks: Bank Capital Methodology And Assumptions – December 06, 2010
Criteria – Financial Institutions – Banks: Commercial Paper I: Banks – March 23, 2004
General Criteria: National And Regional Scale Credit Ratings – September 22, 2014
General Criteria: S&P Global Ratings’ National And Regional Scale Mapping Tables – June 01, 2016
General Criteria: Group Rating Methodology – November 19, 2013
Criteria – Financial Institutions – Banks: Quantitative Metrics For
Rating Banks Globally: Methodology And Assumptions – July 17, 2013
Criteria – Financial Institutions – Banks: Banks: Rating Methodology And Assumptions – November 09, 2011
Criteria – Financial Institutions – Banks: Banking Industry Country Risk Assessment Methodology And Assumptions – November 09, 2011
General Criteria: Use Of CreditWatch And Outlooks – September 14, 2009
Related Research
Federal Republic of Nigeria Ratings Lowered To ‘B/B’ On Weak Growth Dynamics; Outlook Stable – Sept. 16, 2016
Banking Industry Country Risk Assessment: Nigeria – April 26, 2016
Negative Rating Actions Taken On Six Nigerian Banks After Sovereign Outlook Revision – March 24, 2016
Ratings List
***************************** Access Bank PLC ****************************
Downgraded; Ratings Affirmed
To From
Access Bank PLC
Counterparty Credit Rating B/Stable/B B+/Negative/B
Nigeria National Scale ngBBB/–/ngA-2 ngA-/–/ngA-2
***************************** Diamond Bank PLC *****************************
Ratings Affirmed
Diamond Bank PLC
Counterparty Credit Rating B-/C.W. Neg/C
Nigeria National Scale ngBB/Watch Neg/ngB
*************************** Ecobank Nigeria Ltd. ***************************
Downgraded; Ratings Affirmed
To From
Ecobank Nigeria Ltd.
Counterparty Credit Rating B/Negative/B B+/Negative/B
***************************** FBN Holdings PLC *****************************
Ratings Affirmed; CreditWatch/Outlook Action
To From
FBN Holdings PLC
First Bank of Nigeria Ltd.
Counterparty Credit Rating B-/Negative/C B-/Watch Neg/C
Nigeria National Scale ngBB/–/ngB ngBB/Watch Neg/ngB
**************************** Fidelity Bank PLC ***************************
Downgraded; CreditWatch/Outlook Action
To From
Fidelity Bank PLC
Counterparty Credit Rating B-/Stable/C B/Negative/B
Nigeria National Scale ngBB+/–/ngB ngBBB-/–/ngA-3
************************* First City Monument Bank *************************
Downgraded; CreditWatch/Outlook Action
To From
First City Monument Bank
Counterparty Credit Rating B-/Stable/C B/Negative/B
Nigeria National Scale ngBB+/–/ngB ngBBB-/–/ngA-3
************************* Guaranty Trust Bank PLC ************************
Downgraded; CreditWatch/Outlook Action; Ratings Affirmed
To From
Guaranty Trust Bank PLC
Counterparty Credit Rating B/Stable/B B+/Negative/B
Nigeria National Scale ngBBB/–/ngA-2 ngA-/–/ngA-2
************************* Standard Bank Group Ltd. *************************
Downgraded; CreditWatch/Outlook Action; Ratings Affirmed
To From
Stanbic IBTC Bank PLC
Counterparty Credit Rating B/Stable/B B+/Negative/B
Nigeria National Scale ngBBB/–/ngA-2 ngA-/–/ngA-2
***************************** Zenith Bank PLC ****************************
Downgraded; CreditWatch/Outlook Action; Ratings Affirmed
To From
Zenith Bank PLC
Counterparty Credit Rating B/Stable/B B+/Negative/B
Nigeria National Scale ngBBB/–/ngA-2 ngA-/–/ngA-2
Regulatory Disclosures
Primary credit analyst: Samira Mensah, Associate Director [Access Bank PLC, First Bank of Nigeria Ltd., FBN Holdings PLC, Fidelity Bank PLC, Ecobank Nigeria Ltd.]
Primary credit analyst: Matthew Pirnie, Director [Guaranty Trust Bank PLC, Stanbic IBTC Bank PLC, Zenith Bank PLC, Diamond Bank PLC, First City Monument Bank]
Chairperson: Mohamed Damak
Date initial rating assigned:
Access Bank PLC, March 12, 2009
Diamond Bank PLC, April 28, 2014
Ecobank Nigeria Ltd., July 17, 2014
FBN Holdings PLC, June 11, 2013
Fidelity Bank PLC, March 11, 2013
First Bank of Nigeria Ltd., June 11, 2013
First City Monument Bank PLC, May 22, 2008
Guaranty Trust Bank PLC, Nov. 27, 2006
Stanbic IBTC Bank PLC, Nov. 13, 2013
Zenith Bank PLC, Nov. 16, 2007
Date of previous review:
Access Bank PLC, June 17, 2016
Diamond Bank PLC, June 22, 2016
Ecobank Nigeria Ltd., March 24, 2016
FBN Holdings PLC, June 22, 2016
Fidelity Bank PLC, May 11, 2016
First Bank of Nigeria Ltd., June 22, 2016
First City Monument Bank PLC, July 21,2016
Guaranty Trust Bank PLC, March 24, 2016
Stanbic IBTC Bank PLC, August 18, 2016
Zenith Bank PLC, March 24, 2016
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