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International Rating Agency, Standard and Poor’s (S&P) assigned its ‘B’ long term and ‘B’ short term global scale counterparty credit ratings to the United Bank for Africa Plc (UBA), three levels below investment grade and at par with the Nigerian sovereign. The rating comes with a stable outlook, meaning it is unlikely to change.
S&P’s ‘B’ rating is the highest rating currently assigned to any Nigerian-based financial institution. An obligation rated ‘B’ is more vulnerable to non-payment than obligations rated ‘BB’, but the obligor currently has the capacity to meet its financial commitment on the obligation.
Nigerian banks are caught between the country’s worst economic crisis in 25 years and acute dollar shortages which have seen bad loans soar and activities shrink, but their 2016 financial results showed strong profit growth despite the economic tide.
UBA reported first-quarter profit that beat analysts’ estimates, after net income increased by 32 per cent to N22 billion. Revenue increased 43 per cent to N77 billion from N54b billion a year ago. UBA shares were down 0.96 percent to N7.2 as at 2pm on Monday, May 22.
Analysts say that the decision of Central Bank of Nigeria (CBN) to let the market determine the exchange rate will ease the flow of dollars to UBA and other lenders that have been grappling with liquidity crisis and decreasing asset quality. The growth of the bottom line was supported by foreign exchange income of N8 billion in the period under review.
S&P’s ratings come after Moody’s maintained its stable outlook on Nigeria’s banking system on the expectation that dollar shortages are likely to ease up.
The rating agency noted that UBA’s market position is supported by its good franchise in the corporate and retail segments in Nigeria as well as geographic diversification, with operations in nineteen African countries (Nigeria inclusive).
“We expect that UBA’s earnings will be resilient despite the economic slowdown in Nigeria. We believe the bank’s capital and earnings under our risk adjusted capital and earnings framework will remain moderate over the next 12-18 months, with its capital adequacy ratio remaining well above minimum regulatory requirements.”
UBA’s capital adequacy ratio was 19.7% at year-end 2016, which is well above the regulatory minimum of 15%, and we believe it will remain stable over the next 12-18 months.
S&P assesses UBA’s risk position as adequate and posits that the rating of ‘B’ reflects its expectation that the group will exhibit broadly stable asset quality in the next 12 months. The global rating agency anticipates that UBA’s credit losses will decline to about 1.0% in 2017-2018.
United Bank for Africa Plc is a leading Pan-African financial institution, offering banking services to millions of customers across 19 African countries. With presence in New York, London and Paris, UBA is connecting people and businesses across Africa through retail, commercial and corporate banking, innovative cross border payments and remittances, trade finance and ancillary banking services.
