GCR Places 11 Commercial Banks Ratings on ‘Negative Watch’
Lagos Nigeria, 3 April 2020 – Global Credit Rating Company Limited (“GCR”) has today placed on ‘Negative Watch’ the national scale credit ratings currently accorded to 11 commercial banks (United Bank for Africa Plc, Union Bank of Nigeria Plc, First bank of Nigeria Limited, Suntrust Bank Limited, Stanbic IBTC Bank Plc, Fidelity Bank Plc, Wema Bank Plc, Sterling Bank Plc, FCMB Limited, Unity Bank Plc and Ecobank Nigeria Limited) by GCR. This rating action reflects the elevated potential for a significant deterioration in the operating environment and risk profile in the short to medium term.
Recently, Nigeria’s credit risk profile has been exacerbated by the dual challenges of contraction in crude oil sales volume and its falling prices at international market (crashing from USD68.4 as at 31 December 2019 to USD22.8 per barrel as at 30 March 2020), resulting in significant decline in the country’s revenue. Consequently, Nigeria’s foreign exchange reserves has declined from USD38.6bn as at 31 December 2019 to USD35.5bn as at 27 March 2020, while the Naira value has depreciated by around 15% to N415 to a USD at the parallel market during the same period. The falling oil price is expected to see a spark in non-performing loans, especially in the oil & gas sector (particularly, the upstream), while the impact of the Coronavirus (“COVID-19”) pandemic on individuals and businesses (particularly restriction of trade flow and shutdown of businesses) is expected to further worsen asset quality and profitability metrics across the banking industry in near future. The decline in dollar inflow into the economy is expected to create foreign currency (“FCY”) scarcity, potential for devaluation of the currency, which could affect the ability of borrowers to meet their FCY denominated obligations (including Eurobonds issued by some of the banks), the severity of which would depend on the effectiveness of the various measures introduced by Central Bank of Nigeria to manage the concerning situation, particularly through restructuring of banks’ exposures to critical economic sectors.
This rating action by GCR equally affects the senior debt and subordinated debt issued by the affected banks.
GCR will take appropriate further rating actions on a case-by-case basis once the full impact of the aforementioned factors becomes clearer.
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.