Fitch Ratings recently affirmed the Long-Term Issuer Default Rating (IDR) of Ecobank Nigeria Limited at ‘B-‘ with a Stable Outlook, while simultaneously upgrading the bank’s National Short-Term Rating to ‘F2(nga)’ from ‘F3(nga)’.
The upgrade was on the back of the marked decline in Ecobank’s loans in recent years, following which does not see a high risk of the largest Stage 2 loans, concentrated within the oil and gas sector, of becoming impaired. It noted that Ecobank’s asset-quality assessment is positively influenced by a substantial amount of non-loan assets, largely comprising government securities and cash reserves at the Central Bank of Nigeria (CBN). Fitch expects profitability to improve moderately with receding asset-quality pressures and lower LICs.
According to Fitch, the IDRs of Ecobank Nigeria are driven by its standalone creditworthiness, as expressed by its Viability Rating (VR) of ‘b-‘, stating that the bank has a moderate market share of Nigeria’s banking-sector assets but its franchise benefits from being a subsidiary of Ecobank Transnational Incorporated, a large pan-African banking group with operations spanning 33 countries across sub-Saharan Africa (SSA).
Fitch observed that the bank’s “total capital adequacy ratio (CAR) of 19.6% at the end the first quarter of 2021 maintains a comfortable buffer above the 10% regulatory requirement for a bank with a national licence and the bank’s tangible leverage ratio of 10.7% at the end of the first quarter of 2021 which compares favourably with that of peers.
“Impaired loans net of specific loan loss allowances represented a significant 46% of Fitch Core Capital at end of the first quarter of last year but risks to capital are mitigated by strong collateral coverage and recovery expectations of the two large upstream impaired loans.” “ENG’s low gross loans/customer deposits ratio of 67% at the end of 2021 largely reflects a small loan book. Large cash reserves at the CBN, net interbank placements, and unpledged central-government securities represented 33% of total assets and 50% of customer deposits at end of the first quarter of 2021 providing healthy liquidity coverage. Our funding and liquidity assessment also considers the benefits of ordinary liquidity support from ETI,” the report stressed.
Fitch’s view of support for Ecobank Nigeria also considered the high propensity of ETI to provide support, given the former’s importance to the parent’s pan-African strategy as its largest subsidiary and it is operating in sub–Saharan Africa’s largest economy. It also considers the material reputational damage to ETI that would accompany ENG’s default, the 100% ownership, a high degree of management and operational integration, and a record of capital support