Announcements Financial Institutions Rating Alerts

GCR Affirms Union Bank of Nigeria Plc’s Series 2 Bonds Rating of BBB+(NG); Outlook Revised to Stable from Negative.

Lagos, 22 September 2021 – GCR Ratings (“GCR”) has affirmed the national scale issue rating assigned to Union Bank of Nigeria Plc’s Series 2 Bonds of BBB+(NG) with the Outlook revised to Stable from Negative.

Issue Rating class Rating scale Rating Outlook
N6.3bn Series 2 Senior Unsecured Long term issue National BBB+(NG) Stable

Rating Rationale

The Series 2 bonds (“the bonds”) were issued under Union Bank of Nigeria Plc’s (“the issuer”) N100bn Debt Issuance Programme on September 7, 2018. The issuer raised an aggregate sum of N6.3bn in Series 2 bonds issuance, at a fixed annual interest rate of 15.75%. The Series 2 Bonds have a tenor of seven years, with a legal maturity date of September 3, 2025. The Series 2 Bonds constitute senior, direct, irrevocable, and unsubordinated obligations of the Issuer, and shall rank pari passu without any preference among themselves and all unsecured and unsubordinated indebtedness and monetary obligations of the Issuer, present and future, but in the event of insolvency, only to the extent permitted by applicable laws relating to creditors’ rights.

Being senior unsecured debt, the bond bears the same probability of default as the Issuer and would reflect similar recovery prospects to senior unsecured creditors in the event of a default. According to the periodic performance reports provided to GCR by the Trustees to the Bondholders, dated July 16, 2021, the Issuer has been meeting all its obligations on the bonds issued on a timely basis thus far, with no breach of negative pledges/covenants by the issuer.

The issuer, UBN, is a mid-sized commercial bank in the Nigerian banking industry. The bank’s national scale long term rating was affirmed at BBB+(NG) with a Stable Outlook in September 2021. The ratings assigned balances the bank’s good franchise strength, strong funding structure and adequate liquidity position against the modest levels of capitalisation, high loan book concentrations, and moderate asset quality.

Outlook Statement

The stable outlook reflects GCR’s opinion that UBN’s financial profile will remain stable over the rating horizon. We expect to see the bank’s credit losses and impaired loans ratio maintained below the industry averages of 3% and 6% respectively over the next 12-18 months, with no adverse credit migration especially from the watchlist exposures. Also, retained internal capital generation is expected to be maintained at such levels that GCR core capital is not weighed significantly lower, notwithstanding the high loan book growth and above industry average foreign currency exposures.

Rating Triggers

The accorded ratings would be sensitive to a positive rating action on the Issuer. Non-compliance with the set covenants or a downgrade in the Issuer’s rating could trigger a negative rating action.

Analytical Contacts

Primary analyst Abdul Mukhtar Financial Institutions Analyst
Lagos, NG Abdullahim@GCRratings.com +234 1 904 9462
Committee chair Matthew Pirnie Group Head of Ratings
Johannesburg, ZA MatthewP@GCRratings.com +27 11 784 1771

Related Criteria and Research

Criteria for the GCR Ratings Framework, May 2019
Criteria for Rating Financial Institutions, May 2019
GCR Ratings Scale, Symbols & Definitions, May 2019
GCR Nigeria Country Risk Scores, February 2021
GCR Nigeria Financial Institutions Sector Risk Score, February 2021

Ratings History

Union Bank of Nigeria PLC- Series 2 (N6.3bn) Senior Unsecured Bonds

Rating class Review Rating scale Rating Outlook Date
Long Term Issue Initial National BBB+(NG) Stable July 2018
Long Term Issue Last National BBB+(NG) Negative August 2020

Risk Score Summary of the Issuer

Rating Components & Factors Risk scores
Operating environment 7.25
Country risk score 3.75
Sector risk score 3.50
Business profile 1.00
Competitive position 1.00
Management and governance 0.00
Financial profile (1.25)
Capital and Leverage (2.00)
Risk (0.25)
Funding and Liquidity 1.00
Comparative profile 0.00
Group support 0.00
Government support 0.00
Peer analysis 0.00
Total Score 7.00

Glossary

Balance Sheet Also known as Statement of Financial Position. A statement of a company’s assets and liabilities provided for the benefit of shareholders and regulators. It gives a snapshot at a specific point in time of the assets the company holds and how they have been financed.
Capital The sum of money that is invested to generate proceeds.
Cash Funds that can be readily spent or used to meet current obligations.
Debt An obligation to repay a sum of money. More specifically, it is funds passed from a creditor to a debtor in exchange for interest and a commitment to repay the principal in full on a specified date or over a specified period.
Diversification Spreading risk by constructing a portfolio that contains different exposures whose returns are relatively uncorrelated. The term also refers to companies which move into markets or products that bear little relation to ones they already operate in.
Exposure Exposure is the amount of risk the holder of an asset or security is faced with as a consequence of holding the security or asset. For a company, its exposure may relate to a particular product class or customer grouping. Exposure may also arise from an overreliance on one source of funding. In insurance, it refers to an individual or company’s vulnerability to various risks
Income Money received, especially on a regular basis, for work or through investments.
Interest Scheduled payments made to a creditor in return for the use of borrowed money. The size of the payments will be determined by the interest rate, the amount borrowed or principal and the duration of the loan.
Issuer The party indebted or the person making repayments for its borrowings.
Leverage With regard to corporate analysis, leverage (or gearing) refers to the extent to which a company is funded by debt.
Liquidity The speed at which assets can be converted to cash. It can also refer to the ability of a company to service its debt obligations due to the presence of liquid assets such as cash and its equivalents. Market liquidity refers to the ease with which a security can be bought or sold quickly and in large volumes without substantially affecting the market price.
Long Term Rating See GCR Rating Scales, Symbols and Definitions.
Margin A term whose meaning depends on the context. In the widest sense, it means the difference between two values.
Market An assessment of the property value, with the value being compared to similar properties in the area.
Maturity The length of time between the issue of a bond or other security and the date on which it becomes payable in full.
Rating Outlook See GCR Rating Scales, Symbols and Definitions.
Risk The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.
Short Term Rating See GCR Rating Scales, Symbols and Definitions.
Short Term Current; ordinarily less than one year.

Salient Points 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 ratings were based solely on the merits of the rated entity, security or financial instrument being rated; and c.) such ratings were an independent evaluation of the risks and merits of the rated entity, security or financial instrument.

Subsequent to an appeal by the rated entity, the national scale financial strength rating was revised as reflected in the announcement.

The credit rating has been disclosed to Union Bank of Nigeria Plc. The rating above was solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the rating.

Union Bank of Nigeria Plc participated in the rating process via telephonic management meetings, and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible. The information received from Union Bank of Nigeria Plc and other reliable third parties to accord the indicative rating included:

  • The audited financial results as at 31 December 2020
  • Four years of comparative audited numbers
  • Trustees’ performance reports up to June 2021
  • Other related documents.
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