Fitch Ratings has revised down the Support Rating Floors (SRFs) of 10 Nigerian banks to ‘No Floor’ and downgraded nine banks’ Support Ratings (SRs) to ‘5’ following a reassessment of potential sovereign support for the banking sector.
As a consequence, the Long-Term Issuer Default Ratings (IDRs) of First Bank of Nigeria Limited (FBN), FBN Holdings Plc (FBNH), Diamond Bank Plc, Fidelity Bank Plc, First City Monument Bank Limited (FCMB), and Union Bank of Nigeria Plc are downgraded to ‘B-‘ from ‘B’, in line with their stand-alone creditworthiness as defined by their Viability Ratings (VR).
The agency has affirmed the Long-Term IDRs of Zenith Bank Plc, Guaranty Trust Bank Plc (GTB), Access Bank Plc, United Bank for Africa Plc (UBA), Wema Bank Plc and Bank of Industry (BOI).
The downgrade of the nine banks’ SRs and the revision of 10 banks’ (including Wema) SRFs to ‘No Floor’ reflects Fitch’s view that senior creditors can no longer rely on receiving full and timely extraordinary support from the Nigerian sovereign if any of the banks become non-viable.
Fitch believes that the Nigerian authorities retain a willingness to support the banks, but its ability to do so in foreign currency is weakening due to Nigeria’s eroding foreign currency reserves/ revenues, as well as limited confidence that any available foreign currency will not be used to execute other policy objectives. Therefore, Fitch takes the view that support, if ever required by the banks, cannot be relied upon.
The Long-Term IDRs of Diamond, Fidelity, FCMB and Union are downgraded to ‘B-‘ as they are now underpinned by their VRs of ‘b-‘ rather than their SRFs, as was previously the case.
The downgrade of FBN’s Long-Term IDR reflects both a revision of its SRF and a downgrade of its VR. The latter reflects Fitch’s view that the bank’s capital base is no longer commensurate with its risk profile, reflecting questions about asset quality, particularly its level of unreserved impaired loans to Fitch Core Capital (54% at end-June 2016) and pressure on its regulatory capital adequacy ratio. The VR of FBNH has also been downgraded, which drives the downgrade of its Long-Term IDR to ‘B-‘.
Fitch has also downgraded the National Long-Term Ratings of Diamond, Fidelity, FCMB and Union, to ‘BBB(nga)’ from ‘BBB+(nga)’ following the rating actions on their Long-Term IDRs. The National Long-Term ratings of FBN and FBNH have also been downgraded to ‘BBB(nga)’ from ‘A+(nga)’ and ‘BBB+(nga)’, respectively. This also follows the downgrade of their Long-Term IDRs.
