Lagos Nigeria, 22 November 2019–Global Credit Ratings has affirmed the national scale long term credit rating of A(NG) accorded to Series 1 Notes issued under United Bank for Africa Plc (“UBA” or “the bank”) N345bn Medium Term Note Programme; with the outlook accorded as Stable. The rating is valid until September 2020.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating based on the following key criteria:
The accorded rating is supported by the Issuer’s well-established franchise, significant domestic market share (as a top-tier bank in Nigeria) and status as a systemically important bank. Further rating support is derived from the bank’s strong capitalisation and liquidity metrics, as well as geographic and earnings diversification, with operations in twenty African countries and offices in three international financial centres (London, Paris and New York). Operations in Nigeria remain significant to UBA, contributing a notable 75% and 68.6% of the consolidated assets and earnings respectively at FY18.
Although the bank’s total operating income dipped by 5.6% on account of foreign currency revaluation loss and contractions in net interest income, performance at pre-tax level was significantly supported by a decline in impairment charge in FY18. Consequently, pre-tax profit grew by 2.4% to N106.8bn, albeit translated to a lower return on average equity and assets of 15.8% (FY17: 16.4%) and 1.8% (FY17: 2.1%) respectively in FY18. Unaudited results in 3Q FY19 reflects a pre-tax profit of N98.2bn, which compares favourably with the corresponding period in FY18, but lags budget by annualised 23.6%. UBA’s liquidity position appears satisfactory, with the statutory liquidity requirement met by the bank on a monthly basis throughout FY18 and nine-month period ended 30 September 2019.
According to the half-yearly performance reports provided by the Trustees to the Noteholders on the Series 1 Notes, the Issuer has been meeting its obligations under the Issuance on a timely basis, up to the most recent coupon payment date (30 June 2019).
Cognisance was taken of the nature of the Series’ Notes as unsecured and subordinated obligations of the Issuer, ranking after all senior indebtedness and the claims of depositors of the bank. As such, the accorded rating is two notches lower than UBA’s national scale long-term rating of AA-(NG), with a Stable outlook.
Timely payment of the obligations under this Issuance is dependent on the performance of the Issuer. Hence, the accorded rating would be sensitive to a positive rating action on the Issuer. Non-compliance with the set covenants, as well as a negative rating action on the Issuer could trigger a negative rating action on the Notes.
NATIONAL SCALE RATINGS HISTORY
Initial rating (February 2015)
Long term: A(NG)
Last rating (October 2018)
Long term: A(NG)
Yinka Adeoti/Julius Adekeye
+234 1 904-9462
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Criteria for rating Banks and Other Financial Institutions, updated March 2017
Glossary of Terms/Ratios, February 2016
Issuer rating reports (2000-19)
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; 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 12 months, or as indicated by the applicable credit rating document.
The rating was solicited by, or on behalf of United Bank for Africa Plc, and therefore, GCR has been compensated for the provision of the ratings.
United Bank for Africa Plc participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of info received was considered adequate and has been independently verified where possible.
The credit rating above was disclosed to United Bank for Africa Plc with no contestation of/changes to the rating.
The information received from United Bank for Africa Plc , United Capital Trustees Limited to accord the credit rating included the Issuer’s 31 December 2018 audited financial statements, management accounts for the nine month period to 30 September 2019, half yearly Trustees’ performance reports up to 31 October 2019, the Master Trust Deed for Medium Term Note Programme, the Programme Shelf Prospectus for Medium Term Note Programme, the Trust Deed for the Medium Term Note Programme, the Supplemental Shelf Prospectus for the Series 1 Notes, as well as up-to-date performance report from the Trustee.