Top Nigerian banks including Access, First Bank, Guaranty Trust, Stanbic IBTC and Zenith are able to absorb economic shocks despite the downgrade issued Wednesday by rating firm, Standard & Poor’s (S & P).
Low oil prices, pressure on the naira, presidential elections, and regulatory changes are pushing up credit risks, slowing growth opportunities, and constraining capital, earnings, and asset quality in 2015 for Nigeria’s entire banking sector, according to S & P.
“Nevertheless, we consider these banks to be in the top tier of the Nigerian banking sector and believe that they are better placed to absorb periods of economic jolts and maintain their financial profiles,” said S & P in a statement released Wednesday as it downgraded all five banks to B+ based on the earlier downgrade of the sovereign.
“Underpinning these assumptions are the banks’ access to low-cost funds, their well-established corporate franchises, and their stronger underwriting skills. These factors enable them to underwrite more robust exposures and consequently operate with more stable credit losses and stronger margins.”
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Standard& Poor’s last week downgraded Nigeria’s foreign and local currency long-term rating to B+, four levels below investment grade due to falling oil prices and rising political risks.
Nigeria which is Africa’s largest economy derives 90 percent of export earnings and 70 percent of government revenue from oil and is struggling with Brent crude prices which have halved since June.
The current account balance is expected to move to a deficit of 1.8 percent of GDP in the 2015 – 2018 period, compared to previous expectations of a surplus of 3 percent between 2014 and 2017, according to S & P.
The International Monetary Fund (IMF) predicts growth of 4.8 percent this year, down from 6.3 percent in 2014.
The naira has weakened 18 percent in the past six months, according to Bloomberg data. Standard and Poor’s says the outlook on each of the five banks is stable.
At the same time, it affirmed the ‘ngA-1’ short-term Nigeria national scale ratings on First Bank of Nigeria, Guaranty Trust Bank Plc, Stanbic IBTC Bank Plc, and Zenith bank Plc.
In addition, it lowered the long- and short-term counterparty credit ratings on non-operating holding company FBN Holding Plc to ‘B-/C’ from ‘B/B’.
