Lagos Nigeria, 02 November 2020–Global Credit Ratings has affirmed the national scale ratings assigned to United Bank for Africa Plc of AA-(NG) and A1+(NG) in the long and short term respectively; with the outlook accorded as Stable. Furthermore, Global Credit Ratings has affirmed the long term international scale rating assigned to United Bank for Africa Plc of B+; with the outlook accorded as Stable. The ratings are valid until September 2021.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit ratings to United Bank for Africa Plc (“UBA” or “the bank”) based on the following key criteria:
The accorded ratings reflect UBA’s well-established domestic and Pan-African franchise and its status as a systemically important bank in Nigeria. Further rating support is derived from the bank’s sound capitalisation, profitability and asset quality metrics, as well as geographic and earnings diversification, with operations across twenty African countries and offices in three international financial centres (London, Paris, and New York). Also, cognisance is taken of the elevated risk in the operating environment, aggravated by the macroeconomic challenges and uncertainties arising from the COVID-19 pandemic.
UBA is considered well capitalised relative to its current risk level. The bank registered a 19% increase in shareholders’ funds to N598bn at FY19 on account of sound internal capital generation. Consequently, the risk weighted capital adequacy ratio improved to 20.4% at FY19 (FY18: 19.7%) and stood firmer at 21.2% at 1H FY20 (exceeding the regulatory minimum of 15% by a comfortable margin). GCR believes the bank’s robust capital base provides adequate headroom for absorption of credit losses that may stem from the challenging operating environment.
UBA’s gross non-performing loan ratio ended down at 4.1% at 1H FY20 (FY19: 5.3%, FY18: 6.5%) aided by a combination of rapid loan growth and intensified recovery efforts. Provisioning level is also considered satisfactory, with total loan loss provision coverage of impaired loans of 104% at 1H FY20 (FY19: 75.5%). In GCR’s opinion, asset quality metrics could witness some pressures within the short to medium term, amidst the tough macroeconomic landscape.
The bank’s liquidity position appears satisfactory, ending FY19 and 1H FY20 with statutory liquidity ratio of 44% and 33.6% respectively, against the regulatory minimum of 30%. While the contractual mismatch of assets and liabilities reflect a significant liquidity gap of N2.5trn within the critical ‘less than one-month’ maturity band (equivalent of 4.3x of shareholders’ funds at FY19), the rollover nature of deposits, coupled with available credit lines from other financial institutions provides some level of comfort.
UBA reported a post-tax profit of N89.1bn in FY19, representing a 13.3% year-on-year growth. While net-interest income rose by 7.9%, non-interest income grew firmer by 21.3% on the back of improved fee and commission income, thus boosting total operating income by 12.4% to N346.3bn in FY19. Despite a 10% increase in operating expenses, an outpaced growth in revenue saw cost ratio moderate to 62.7% in FY19 (FY18: 64.0%). Overall, return on average equity and asset closed at a relatively stable 16.8% and 1.7% in FY19 (FY18: 15.8% and 1.8%), respectively. Audited results as at 1H FY20 reflects a pre-tax profit of N57.1bn, which compares favourably with the corresponding period in FY19, but lags budget by annualised 15.6%.
A positive rating movement could emanate from a significant improvement in the operating environment (including stability in regulatory environment), as well as the bank’s profitability and risk position. However, downward ratings movement may emanate from a significant deterioration in performance metrics (including profitability, liquidity, capitalisation, and asset quality). Furthermore, the international scale rating will be sensitive to changes in the sovereign rating of Nigeria.
NATIONAL SCALE RATINGS HISTORY
Initial rating (August 2000) Last rating (November 2019)
Long term: AA(NG) Long term: AA-(NG)
Short term: A1+(NG) Short term: A1+(NG)
Rating outlook: Stable Rating outlook: Stable
INTERNATIONAL SCALE RATINGS HISTORY
Initial rating (August 2013) Last rating (November 2019)
Long term international scale: BB- Long term international scale: B+
Rating outlook: Stable Rating outlook: Stable
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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
UBA 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 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, 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 information received was considered adequate and has been independently verified where possible.
The credit ratings above were disclosed to United Bank for Africa Plc with no contestation of/changes to the ratings.
The information received from United Bank for Africa 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), audited financial statements for the period ended 30 June 2020, latest internal and/or external audit report to management, full year detailed budgeted financial statements for 2020, reserving methodologies and capital management policies. In addition, information specific to the rated entity and/or industry was also received.