Despite Fitch downgrade, Zenith, GTB still ‘highest rated banks’ in Nigeria

Fitch Ratings, one of the big three rating agencies in the world, has rated Zenith and Guaranty Trust Bank (GTB) highest in Nigeria despite downgrading the rating of the financial institutions and two others from “stable” to “negative.” 

The other affected banks are First Bank of Nigeria and Diamond bank.

In a statement released on Wednesday, Fitch said that it had also affirmed the Long-Term Issuer Default Ratings (IDR) of 10 financial institutions in Nigeria.

“Fitch Ratings has revised the outlook on four Nigerian banks to negative from stable and affirmed the Long-Term Issuer Default Ratings of 10 banks and financial institutions,” the statement read.

“The Issuer Default Ratings Outlooks on Zenith and GTB (both at B+) have been revised to Negative following a recent similar action on Nigeria’s (B+) Outlook. The other two banks, whose Outlooks have been revised to Negative, are Diamond and FBN/FBNH and the revision reflects their weaker financial profiles. We have downgraded the Long-and Short-Term National Ratings of FBN/FBNH and Diamond to ‘BB+(nga)’ and ‘B(nga)’ respectively to reflect heightened vulnerability of capital due to downside asset quality risks.”

“GTB and Zenith are the highest rated banks in Nigeria with Long-Term IDRs and VRs of ‘B+’ and ‘b+’ respectively. These ratings are driven by solid company profiles, management quality and strong through-the-cycle performance. The Negative Outlooks on their Long-Term IDRs reflect Fitch’s view that they cannot be rated above the sovereign due to the close correlation between the domestic operating environment and their credit profiles, including large holdings of government securities.”

The financial institutions whose IDR’s were affirmed are United Bank for Africa (UBA), Access Bank, Fidelity Bank, Union Bank, First City Monument Bank (FCMB), Wema Bank. The national ratings of Stanbic IBTC Bank, as well as its bank holding company, Stanbic IBTC Holdings Plc, were also affirmed.

“The IDRs of all the banks (except SIBTC/SIBTCH) are driven by Fitch’s assessment of their standalone creditworthiness as captured in their Viability Ratings (VRs). The IDRs are all in the ‘B’ range, indicating highly speculative fundamental credit quality, and factor in the banks’ weakened credit profiles due to challenging macro-economic conditions and market volatility.

“The operating environment continues to be affected by the oil price shock, slow GDP growth, continuing pressure on the naira, scarcity of hard currency in the FX interbank market and policy uncertainty.

“The VRs continue to be pressured by tight foreign currency liquidity, asset quality deterioration and limited capital buffers. The sector remains largely profitable, but operating profits in 2016 were inflated by foreign currency revaluation gains (due to the sharp depreciation of the naira in June 2016).

“Fitch is monitoring the banks’ ability to meet maturing external obligations given current difficult market conditions and limited supply of foreign currency from the Central Bank of Nigeria (CBN).

“The new foreign-exchange regime has provided limited respite in accessing foreign currency in the interbank market. Further depreciation of the naira against the US dollar would negatively impact banks’ regulatory capital ratios due to the translation effect of risk-weighted assets (RWAs).”