Lagos Nigeria, 01 July 2020–Global Credit Ratings has accorded an indicative, public national scale long term rating of A(NG) to Series 1 Notes issued under United Bank for Africa Plc N300bn Medium Term Note Programme; with a Negative Watch Outlook. The rating is valid until October 2020.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating based on the following key criteria:
The Series 1 Bonds are being issued under United Bank for Africa Plc’s (“UBA” or “the bank” or “the Issuer”) N300bn Medium Term Note Programme (“MTNP”). The MTNP is backed by enabling resolution of the Board of Directors of the Issuer, authorising the management to discretionarily determine the number of issues, as well as the forms, terms and conditions of the Bonds to be issued under the programme. Specifically, the Programme Trust Deed allows the Issuer to issue Bonds in series (each of which may comprise one or more tranches or be issued on different dates). The Series 1 Bonds will constitute direct, subordinated unsecured obligations of the Issuer and the proceeds of the Series 1 Bonds will, if certified by Central Bank of Nigeria, form part of the Issuer’s Tier II Capital.
UBA is one of the largest financial institutions in Africa, with geographic and earnings diversification across twenty African countries and three international financial centres (London, Paris and New York). Cognisance is taken of UBA’s strong capitalisation, liquidity, profitability metrics, as well as its systemically important bank status in Nigeria, underpinned by its significant domestic market share.
UBA’s profitability metrics improved in FY19, with net profit after tax recording a year-on-year 13.3% growth to N89.1bn. While net-interest income rose by 7.9%, non-interest income grew by 21.3% on the back of improved fee and commission income, thus resulting in a firmer total operating income of N346.3bn (FY18: N308.2bn). Also, the cost-to-income ratio improved to 62.7% in FY19 (FY18: 64.0%), despite a 10% increase in operating expenses. 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. Unaudited results in 1Q FY20 reflects a pre-tax profit of N32.7bn, representing 8.5% growth over the corresponding period in 2019. UBA’s liquidity position appears satisfactory, with the statutory liquidity requirement met by the bank on a monthly basis throughout FY19.
The accorded rating reflects the unsecured and subordinated nature of the Issuer’s obligations under the Issue, ranking after all senior indebtedness and claims of depositors of the bank. As such, the accorded rating is two notches lower than UBA’s national scale long-term rating of AA-(NG). Also, the rating is placed on “Negative Watch” in line with recent rating action on the bank, following the current macroeconomic challenges, aggravated by a combination of the coronavirus pandemic and the dwindling global crude oil prices. GCR expects to closely monitor events as they unfold, and reassess the possible impact of these challenges on UBA’s key performance metrics within the next six months.
The accorded rating would be sensitive to a positive rating action on the Issuer. However, non-compliance with the set covenants, and/or a downgrade of the Issuer’s rating, would result in a negative rating action on the Bonds.
^Indicative rating and outlook, to be converted to a final rating and outlook upon the receipt of all final transaction documents
NATIONAL SCALE RATINGS HISTORY
Initial/last rating^ (May 2020)
Long term: A(NG)
Rating outlook: Negative Watch
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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
Issuer 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; 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 12 months, or as indicated by the applicable credit rating document.
The rating was 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 info received was considered adequate and has been independently verified where possible.
The credit rating above was disclosed to United Bank for Africa Plc with no contestation of/changes to the rating.
The information received from United Bank for Africa Plc , United Capital Trustees Limited to accord the credit rating included the Issuer’s 31 December 2019 audited financial statements, management accounts for the three-month period to 31 March 2020, the Master Trust Deed for Medium Term Note Programme, the Shelf Prospectus for Medium Term Note Programme, the Trust Deed for the Medium Term Note Programme, the Trust Deed for the Series 1 Bonds as well as the Supplemental Shelf Prospectus for the Series 1 Bonds.