Lagos Nigeria, 22 November 2019–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 2020.
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:
UBA’s ratings reflect its 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 remains significant to UBA, contributing a notable 75% and 68.6% of the consolidated assets and earnings respectively at FY18. Hence, the accorded ratings are constrained by the challenging operating and unstable regulatory environment.
UBA’s capitalisation is considered adequate for its current risk level, with a risk weighted capital adequacy ratio of 19.3% and 19.7% at 3Q FY19 and FY18 respectively, well above regulatory minimum of 15% for international commercial banks. However, shareholders’ funds declined by 4.8% to N502.6bn at FY18, following the implementation of IFRS 9 accounting standard.
The bank’s asset quality metrics improved during the review period, underpinned by expansion in the loan portfolio and the restructuring of exposures within the telecommunication sector. As a result, gross non-performing loans ratio ended down at 5.7% at 3Q FY19 (FY18: 6.5%), measuring positively with peers’ average. Also, total loan loss provision coverage of impaired loans improved to 78.9% at FY18 (FY17: 50.5%). Furthermore, concentration risk by obligor is considered low, as the single largest exposure constituted a moderate 3.4% and 12.1% of the loan book and shareholders’ funds respectively at year-end.
UBA displayed a relatively sound liquidity profile at FY18, with the statutory liquidity ratio maintained between 43.4% and 57% throughout the year, against the regulatory minimum of 30%. However, the contractual mismatch of assets and liabilities reflects a significant liquidity gap of N1.5tn within the critical ‘less than one-month’ maturity bucket, equivalent to 3x of shareholders’ funds. Nevertheless, the rollover nature of deposits and the fact that the bank held a sizeable portion of its assets in cash and highly liquid investments mitigates liquidity risk somewhat.
Although 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%.
Significant improvement in the operating environment (including stability in regulatory environment), as well as the bank’s profitability and risk position. 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 (October 2018)
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 (October 2018)
Long term international scale: BB- Long term international scale: B+
Rating outlook: Stable Rating outlook: Stable
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
UBA rating reports (2000-18)
RATING LIMITATIONS AND DISCLAIMERS
SALIENT FEATURES OF ACCORDED RATINGS
GCR affirms that a.) no part of the ratings 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; c.) such ratings were an independent evaluation of the risks and merits of the rated entity, security or financial instrument; and d.) the validity of the ratings 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 2018 (plus four years of comparative numbers), unaudited financial statements for the period ended 30 September 2019, latest internal and/or external audit report to management, full year detailed budgeted financial statements for 2019, reserving methodologies and capital management policies. In addition, information specific to the rated entity and/or industry was also received.