Announcements Criteria

GCR publishes Financial Institutions Sector Risk Scores for Nigeria

Lagos, 10 February 2021: GCR Ratings (“GCR”) has published the Financial Institutions Sector Risk Scores for Nigeria.

The Financial Institutions Sector Risk Scores are available for download at https://gcrratings.com/risk-scores/.

The GCR Financial Institutions Sector Risk Assessment

The Financial Institutions sector risk score (ranging from 0 to 15) is a key factor in the operating environment component score. The core of the GCR Ratings Framework is based on GCR’s opinion that an entity’s operating environment largely frames its creditworthiness. As a result, the operating environment analysis anchors the underlying risk score for the GCR rating methodology. GCR combines elements of the country risk and sectoral risk analysis, blended across countries for entities operating across multiple jurisdictions, to anchor an insurer to its current operating conditions. For more details on the above, please read the related criteria and research listed below.

GCR will periodically publish updated “Financial Institution Sector Risk Scores”, which will supersede previous publications. The publication titled “GCR Financial Institutions Sector Risk Scores, 10 February 2021”, available at https://gcrratings.com/risk-scores/, supersedes the article published on 17 August 2020.

Financial Institutions sector risk scores

Federal Republic of Nigeria, Sector Risk Score 3.5. Country Risk Score 3.75*, Mapping Table 3.5 to 4.0

The Nigerian Financial Institutions Risk Score of 3.5 is supported by strong local currency liquidity within the sector and stability in the funding (which is largely deposit based). Also, the banking sector appears well capitalized on average. In addition, consideration was given to regulatory compliance, which is considered adequate and in line with the regional average. However, concentration of the loan book by sector (oil and gas) heightens credit risk, though with modest levels of non-performing loans. We note that the Nigerian banking sector is highly fragmented, with the top tier of the sector controlled by a few players and increasing competition amongst players within the sector. The relatively low private sector debt is expected to continually increase going forward given the regulatory backed position of increased lending to the private sector, which would enable diversification. The standard negative one (-1) adjustment for NBFI was applied. However, there could be further negative adjustments up to negative two (-2) for any rated entity in sectors without strong regulatory oversight.

Analytical contacts

Primary Analyst Adeyinka Olowofela Senior Analyst
Lagos, Nigeria Yinka@GCRratings.com +234 1 904 9462-3
Primary Analyst Matthew Pirnie Group Head of Ratings
Johannesburg, South Africa 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 Scales, Symbols & Definitions, May 2019
GCR Country Risk Scores, February 2021
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