Lagos Nigeria, 02 July 2018–Global Credit Ratings has today affirmed the national scale ratings assigned to Ecobank Nigeria Limited of A-(NG) and A1-(NG) in the long and short term respectively, with the outlook accorded as Stable. The ratings are valid until May 2019.
SUMMARY RATING RATIONALE
Global Credit Ratings has accorded the above credit ratings to Ecobank Nigeria Limited’s (“Ecobank” or “the bank”) based on the following key criteria:
The ratings take into consideration Ecobank’s moderating competitive positioning and increasing impaired loans in the highly competitive banking industry. However, cognisance is taken of the available parental support from Ecobank Transnational Incorporation (“ETI”) as continuously demonstrated over the years and the status of the bank as a systemically important bank (“SIB”) in Nigeria.
Capitalisation is considered adequate at current risk levels, with the bank reporting a risk weighted capital adequacy ratio (“CAR”) of 16.5% and 16.0% at April FY18 and FY17 respectively, against the prudential floor of 15% for SIBs. While shareholders’ funds grew by 21.1% to N267.3bn at FY17, a function of the bank’s internal capital generating capacity, management has informed GCR of the possibility of raising debt capital in the second half of FY18 to boost the capital base.
Gross impaired loans rose over the last three years of review, exacerbated in FY17 by the contraction in economic fundamentals which led to a rise in default rate across most peers. As such, Ecobank’s gross non-performing loan (“NPL”) ratio rose to 14.5% in FY17, from 9.1% and 10.2% in FY16 and FY15 respectively. While management had written-off and sold some NPLs in FY16, majority of the impaired loans in FY17 were restructured as most of the obligors are expected to perform with the rebound of the economy. Total restructured loans in FY17 amounted to N58.2bn, representing 6.3% of gross loans. As a result, specific provision coverage of impaired loans improved to 46.7% at FY17 (FY16: 32.1%).
Ecobank’s regulatory liquidity ratio came under pressure during FY17, albeit remained above the regulatory minimum of 30% throughout the period. The regulatory liquidity ratio closed the year at 38.7% (FY16: 47.5%, FY15: 51.6%).
Despite a challenging operating environment, Ecobank recorded an improved profit after tax of N20.2bn (FY16: N5.8bn), largely supported by reduction in impairment charge (27.6%) and operational efficiency measures (9.6% decrease in operating expenses) undertaken by the bank. Among the operation efficiency measures embarked upon by the bank in FY17 includes, staff rationalisation, new fleet management system and branch optimisation exercise. Consequently, return on average equity and assets (“ROaE” and “ROaA”) increased to 8.3% and 1.1% respectively from 2.6% and 0.3% respectively in FY16.
While the current ratings takes into consideration the available parental support, an upward review of the ratings may follow a rebound in asset quality and competitive positioning. However, the ratings may be reviewed downward following a further weakening in asset quality, liquidity, capital adequacy and profitability
NATIONAL SCALE RATINGS HISTORY
Initial rating (November 2006)
Long term: A+(NG)
Short term: A1(NG)
Last rating (May 2017)
Long term: A-(NG)
Short term: A1-(NG)
Senior Credit Analyst
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APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Criteria for rating Banks and Other Financial Institutions, updated March 2017
Glossary of Terms/Ratios, February 2016
Ecobank rating reports (2006-17)
RATING LIMITATIONS AND DISCLAIMERS
SALIENT FEATURES OF ACCORDED RATINGS
GCR affirms that a.) no part of the rating was influenced by any other business activities of the credit rating agency; b.) the rating was based solely on the merits of the rated entity, security or financial instrument being rated; c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument; and d.) the validity of the rating is for a maximum of 12 months, or earlier as indicated by the applicable credit rating document.
The ratings were solicited by, or on behalf of, Ecobank Nigeria Limited, and therefore, GCR has been compensated for the provision of the ratings.
Ecobank Nigeria Limited participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.
The credit ratings above were disclosed to Ecobank Nigeria Limited with no contestation of/changes to the ratings. The information received from Ecobank Nigeria Limited and other reliable third parties to accord the credit ratings included the latest audited annual financial statements as at 31 December 2017 (plus four years of comparative numbers), latest internal and/or external report to management, full year 2018 detailed budgeted financial statements, year-to-date unaudited accounts to 30 April 2018, reserving methodologies and capital management policies. In addition, information specific to the rated entity and/or industry was also received.