Lagos Nigeria, 4 August 2020–Global Credit Ratings has today affirmed the national scale ratings assigned to Union Bank of Nigeria Plc’s Series 1 and Series 2 Bonds of BBB+(NG); under the N100bn Debt Issuance Programme. The outlook is accorded as Negative. The ratings are valid until June 2021.
SUMMARY RATING RATIONALE
Global Credit Ratings has accorded the above credit ratings to Union Bank of Nigeria Plc’s Series 1 and Series 2 Bonds based on the following key criteria:
The Series 1 and Series 2 bonds (“the bonds”) were issued under Union Bank of Nigeria Plc’s N100bn Debt Issuance Programme in September 2018. The Issuer raised an aggregate sum of N13.5bn, comprising the Series 1 (N7.2bn) and Series 2 (N6.3bn) Bonds, at a fixed annual interest rate of 15.5% and 15.75% respectively. While the Series 1 Bonds have a three-year tenor, with the legal maturity date being 3 September 2021, the tenor of the Series 2 Bonds is seven years, commencing from the Issue date. The Series 1 and Series 2 bonds constitute direct, unconditional, unsecured and senior obligations of the Issuer.
The Issuer is a mid-sized commercial bank in terms of balance sheet size and geographical spread. The bank’s national scale long-term rating was affirmed at ‘BBB+(NG)’ with the outlook accorded as Negative in July 2020. While the accorded rating took into consideration the improvement in asset quality and capitalisation metrics at FY19, the current macro-economic challenges, exacerbated by the sustained weighting of the bank’s loan book to the challenged oil and gas sector remain a major constrain. Hence, the negative rating outlook.
The bank’s profitability improved in FY19, largely supported by non-interest income (particularly recoveries). While net interest income grew marginally 1.8% to N52.5bn, non-interest income increased by 24.8% to N42.8bn (of which N12bn relates to recoveries). Profitability was further enhanced by the absence of impairment and a relatively flat operating expense. Cost ratio though moderated to 74.5% (FY18: 83.1%), measured above the industry average of 67%. Pre-tax profits rose by 37.5% to N24.8bn, well ahead of budget. Thus, ROaE and ROaA improved to 10.5% and 1.5% respectively from 6.4% and 1.2% in FY18. Also, performance as at 1Q FY20 reflects a significant improvement relative to the corresponding period in FY19.
Given the status of the Series 1 and Series 2 bonds as senior unsecured obligations of the Issuer, the bonds have been accorded a national scale long term of BBB+(NG) in line with the Issuer’s rating. According to the quarterly performance report provided by the Trustees on the bonds, the Issuer has been meeting its obligations under the Issuances on a timely basis, up to the most recent coupon payment date 3 March, 2020.
While the accorded rating will be sensitive to a positive rating action on the Issuer, the rating may be revised downward due to non-compliance with the bond covenants and /or downgrade of the bank’s rating
NATIONAL SCALE RATINGS HISTORY
Initial rating (June 2015)
Long term: BBB+(NG)
Short term: A2(NG)
Last rating (July 2019)
Long term: BBB+(NG)
Short term: A2(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
UBN rating reports (2015-19)
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 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, Union Bank of Nigeria Plc, and therefore, GCR has been compensated for the provision of the ratings.
Union Bank of Nigeria Plc 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 Union Bank of Nigeria Plc with no contestation of/changes to the ratings.
The information received from Union Bank of Nigeria Plc and other reliable third parties to accord the credit ratings included the latest audited annual financial statements as at 31 December 2019 (plus four years of comparative numbers), latest internal and/or external report to management, full year 2020 budgeted financial statements, year-to-date unaudited accounts to 31 March 2020, reserving methodologies and capital management policies. In addition, information specific to the rated entity and/or industry was also received.