Announcements Financial Institutions Rating Alerts

GCR affirms Union Bank of Nigeria Plc’s Series 1 and Series 2 Bonds Ratings of BBB+(NG)

Lagos Nigeria, 15 August 2019–Global Credit Ratings has today affirmed the national scale long term rating of BBB+(NG) accorded to the Series 1 and Series 2 Bonds issued under the N100bn Debt Issuance Programme(“DIP”); with a Stable outlook. The ratings are valid until June 2020.

SUMMARY RATING RATIONALE

Global Credit Ratings has accorded the above credit ratings based on the following key criteria:

Union Bank of Nigeria Plc (“UBN” or “the Bank”) was enabled by the resolution of its Board of Directors (“the Board”) to issue Bonds in Series or Tranches from time to time, with varying maturities and variable rates of interests, registered the DIP with the Securities and Exchange Commission in September 2018. The Bank through its Series 1 and Series 2 Bonds (“the Bonds”) raised an aggregate sum of N13.5bn in September 2018. The Bonds (which were the first to be issued under the DIP) were of very similar terms except for the rates and tenor, and constitute direct, unconditional, unsecured and senior obligations of the Bank.

UBN is s a mid-sized player in the Nigerian banking industry in terms of balance sheet size, capitalisation and geographical presence. GCR affirmed the Bank’s long-term national scale rating at ‘BBB+(NG)’ with a Stable outlook in June 2019.

The Bank’s performance metrics were under pressure in FY18, underpinned by the slow-down in loan growth. Total operating income was down 14.6% year-on year and operating expenses rose by 12.5%, translating to a higher cost ratio of 82.9% in FY18 (FY17: 63.0%). Notwithstanding this, a pre-tax profit of N18.5bn was achieved, representing 32.6% increase from the previous year, as major write-off for the period was charged directly to reserves. Performance at 1Q FY19 reflects that performance at the pre-tax level was in line with budget on annualised basis, largely supported by growth in non-interest income.

Capitalisation metrics weakened during the year with the capital to total assets ending down at 15.8% (FY17: 23.7%). This followed a significant 34.3% decline in total shareholders’ fund to N225.6bn, underpinned by write-off of N132.6bn. According to management, the additional write-off was necessitated by the reassessment of the loans and advances book under IFRS 9, as well as the Bank’s decision to fully write-off some of its non-performing loans. Accordingly, statutory capital adequacy ratio (“CAR”) declined to 16.4% at FY18 (FY17: 17.8%), albeit this was supported by CBN’s IFRS 9 transition arrangement (which allows banks to gradually release additional provision from the process into CAR computation over a four-year period). Going forward, management remain confident of being able to sustain CAR above the required minimum. The CAR ended up at 16.5% at 1Q FY19.

As the Bonds are senior unsecured obligation of the Issuer, the Bonds bear the same rating as the Issuer, and any change in the rating assigned to the Issuer will directly affect the Bonds rating.

Performance report from the Trustees as at 31 May 2019 reflects the first coupon has been paid and there were no breach of negative pledge or covenants by the Issuer as at the date of the report.

Timely payment under the obligation directly on the performance of the Issuer. Hence, the ratings would be sensitive to a positive rating action on the Issuer. However, non-compliance with the set covenants, as well as a negative rating action on the Issuer could trigger a negative rating action on the Bonds.

NATIONAL SCALE RATINGS HISTORY

Initial rating* (July 2018) Last rating (December 2018)
Long term: BBB+(NG) Long term: BBB+(NG)
Short term: A2(NG) Short term: A2(NG)
Outlook: Stable Outlook: Stable

*Indicative rating

ANALYTICAL CONTACTS

Primary Analyst
Funmilayo Abdulrahman
funmilayo@globalratings.net
+234 1 462 2545

Committee Chairperson
Dave King
king@globalratings.net

APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Criteria for rating Banks and Other Financial Institutions, updated March 2017
Glossary of Terms/Ratios, February 2018
UBN rating reports (2015-18)

RATING LIMITATIONS AND DISCLAIMERS

ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK: . IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT . PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE AT www.globalratings.com.ng

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 2018 (plus four years of comparative numbers), latest internal and/or external report to management, full year 2019 budgeted financial statements, year-to-date unaudited accounts to 31 March 2019, reserving methodologies and capital management policies. In addition, information specific to the rated entity and/or industry was also received.

image_pdfPDF View


ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK:HTTP://GCRRATINGS.COM. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT WWW.GCRRATINGS.COM/RATING_INFORMATION. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR's CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THIS SITE.

CREDIT RATINGS ISSUED AND RESEARCH PUBLICATIONS PUBLISHED BY GCR, ARE GCR’S OPINIONS, AS AT THE DATE OF ISSUE OR PUBLICATION THEREOF, OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. GCR DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL AND/OR FINANCIAL OBLIGATIONS AS THEY BECOME DUE. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: FRAUD, MARKET LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND GCR’S OPINIONS INCLUDED IN GCR’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND GCR’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND GCR’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL OR HOLD PARTICULAR SECURITIES. NEITHER GCR’S CREDIT RATINGS, NOR ITS PUBLICATIONS, COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. GCR ISSUES ITS CREDIT RATINGS AND PUBLISHES GCR’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING OR SALE.

Copyright © 2021 GCR INFORMATION PUBLISHED BY GCR MAY NOT BE COPIED OR OTHERWISE REPRODUCED OR DISCLOSED, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT GCR’S PRIOR WRITTEN CONSENT. Credit ratings are solicited by, or on behalf of, the issuer of the instrument in respect of which the rating is issued, and GCR is compensated for the provision of these ratings. Information sources used to prepare the ratings are set out in each credit rating report and/or rating notification and include the following: parties involved in the ratings and public information. All information used to prepare the ratings is obtained by GCR from sources reasonably believed by it to be accurate and reliable. Although GCR will at all times use its best efforts and practices to ensure that the information it relies on is accurate at the time, GCR does not provide any warranty in respect of, nor is it otherwise responsible for, the accurateness of such information.GCR adopts all reasonable measures to ensure that the information it uses in assigning a credit rating is of sufficient quality and that such information is obtained from sources that GCR, acting reasonably, considers to be reliable, including, when appropriate, independent third-party sources. However, GCR cannot in every instance independently verify or validate information received in the rating process. Under no circumstances shall GCR have any liability to any person or entity for (a) any loss or damage suffered by such person or entity caused by, resulting from, or relating to, any error made by GCR, whether negligently (including gross negligence) or otherwise, or other circumstance or contingency outside the control of GCR or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits) suffered by such person or entity, as a result of the use of or inability to use any such information. The ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained in each credit rating report and/or rating notification are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. Each user of the information contained in each credit rating report and/or rating notification must make its own study and evaluation of each security it may consider purchasing, holding or selling. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY GCR IN ANY FORM OR MANNER WHATSOEVER.