Finance

Access Bank, UBA, Zenith Bank outlooks stable

Access Bank, UBA, Zenith Bank Outlooks Stable

LAGOS  – S&P Global Ratings has affirmed its issuer and issue credit ratings on some Nigerian banks, especially, Access Bank, United Bank for Africa and Zenith Bank. 

The affirmations follow a revision of its criteria for rating banks and nonbank financial institutions and for determining a Banking Industry Country Risk Assessment (BICRA). 

S&P said: “Our revision of the national scale ratings of the top-tier Nigerian banks as well as two mid-tier banks is underpinned by their resilience to various shocks over the past few years, which we expect will continue. 

“The banking sector in Nigeria (B-/Stable/B) is exposed to short credit cycles because of the volatility of oil prices, but the performance of top-tier and some mid-tier banks continued to improve. 

“Nevertheless, we cap the ratings on Nigerian banks at the level of the sovereign ratings because of the likely direct and indirect influence of sovereign distress on their operations, including their ability to service foreign currency obligations. 

“Therefore, we have affirmed all our global scale ratings on these banks, including our ratings on their parent companies”. 

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On Access Bank, the rating agency raised its national scale rating on Access Bank to reflect its market-leading position in Nigeria, headed by a very stable management team, large retail franchise, and well-established corporate business. 

“Following the acquisition of Diamond Bank in 2019, the bank’s digital strategy, combined with its agency banking, has led to a better optimization of cost of funding, which fell below 3% in June 2021. The recently expanded geographic diversification which largely focuses on payments, cash management, and trade finance will continue to support revenue stability and earnings capacity through the cycle. 

“We expect nonperforming loans (NPLs) will peak at about 5% in 2022, in line with the decision to continue to de-risk the loan portfolio. The outlook is stable and reflects that on Nigeria with Credit Rating at B-/Stable/B. 

We would lower the ratings on the bank over the next 12 months if we took a similar action on Nigeria. This could happen if we observed increasing risk that Nigeria would lack the capacity to repay its commercial obligations, due to either declining external liquidity or a continued reduction in fiscal flexibility, which would likely affect banks’ access to U.S. dollar liquidity. 

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On the upside, an improvement of Nigeria’s sovereign creditworthiness would likely result in a higher rating for the bank. This could happen if the country’s economic performance became much stronger than we expect, or external financing stress proved to be temporary, all else being equal. 

For United Bank for Africa PLC (UBA), S&P raised its national scale rating to reflect its long-standing market-leading position in Nigeria and its favourable business mix.

The group operates in Nigeria and across key economies in Sub-Saharan Africa, as well as the U.S. and the U.K. The group’s expansion within Africa relies on an expanding agency banking network and digital channels, which have continued to drive down cost of funds. Group revenue has been resilient through the cycles because of UBA’s focus on trade finance, payment and cash management services, which underpin non-funded income. 

The group’s asset quality metrics are comparatively good and are underpinned by a conservative risk appetite and a stable management team. 

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The outlook is stable and reflects that on Nigeria while Credit Rating is at B-/Stable/B. 

The agency raised its national scale ratings on Zenith Bank to better reflect its market-leading position in Nigeria with a strong corporate franchise and stable revenue base through the cycle. 

The bank’s strong profitability is underpinned by low cost of funding, a comparatively high efficiency ratio, and broadly constant cost of risk. The group’s asset quality metrics are comparatively good, underpinned by a conservative risk appetite. 

Similar to most top-tier banks, Zenith Bank operates with large regulatory capital buffers and high quality of capital and earnings. 

The bank’s outlook is stable and reflects that on Nigeria. 

“We would lower the ratings on Zenith Bank over the next 12 months if we took a similar action on Nigeria. This could happen if we observed increasing risk that Nigeria would lack the capacity to repay its commercial obligations, due to either declining external liquidity or a continued reduction in fiscal flexibility, which would likely affect banks’ access to U.S. dollar liquidity.” 

Independent

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