Fitch affirms Ecobank Transnational Inc's ratings; removes from RWN
Category: Investors NewsBeat
Friday April 27, 2012
Fitch Ratings has affirmed and simultaneously removed from Rating Watch Negative (RWN) Ecobank Transnational Inc's (ETI) Long-term Issuer Default Rating (IDR) at 'B-' and Viability Rating (VR) at 'b-'. The Outlook is Stable. A list of rating actions is at the end of this release.
ETI's Long-term IDR and VR were placed on RWN following the acquisition of the Nigerian failed bank Oceanic Bank (Oceanic) in August 2011 and reflected Fitch's concerns on the impact of the transaction on ETI's capitalisation and asset quality. Following the publication of ETI's 2011 consolidated financial statements, including detailed asset quality data, and the public announcement of the forthcoming USD250m capital increase, it is Fitch's view that ETI's financials and risk are commensurate with a 'B-' Long-term rating.
The fresh capital will be provided by Public Investment Company (PIC) of South Africa, wholly owned by the Ministry of Finance of South Africa, serving as principal asset management company for the public sector of the Republic of South Africa.
Fitch considers ETI's capitalisation post capital increase remains weak when considering ETI's asset quality and dynamic external growth in a volatile operating environment. Any deterioration in ETI's capitalisation puts downward pressure on its ratings. Fitch estimates that when the USD250m capital injection takes place, ETI's Fitch core capital (FCC) ratio will reach 11.9% (9.5% at end-2011) while its Basel 1 Tier 1 ratio will be around 15% (12.5%).
On a stand-alone basis, ETI's liquidity position is tight in Fitch's opinion. The USD250m capital raised will to some extent be down streamed to subsidiaries; the provision of capital to any subsidiary from ETI's own available resources would put ETI's liquidity under severe stress.
Fitch recognises that there are potential synergies that may result from ETI's acquisition of Oceanic, if ETI completes the integration successfully. In addition, ETI and the merged entity in Nigeria depart with a cleaner loan book relative to 2010 thanks to the substantial sale of non-performing loans from Oceanic as well as from Ecobank Nigeria to the Asset Management Corporation of Nigeria (AMCON) in 2011. While this does not represent an improvement in ETI's risk management, the loan book's overall asset quality has improved.
ETI, domiciled in Togo, is the holding company of Ecobank, one of the largest pan-African banking groups. Ecobank has expanded strongly in recent years by acquiring or establishing majority-owned banking subsidiaries across sub-Saharan Africa. Ecobank had banking operations in 32 countries in Africa at end-2011 and its major operating subsidiaries were in Nigeria (43.7% of group assets; 29% at end-2010), Ghana (7.9%) and Cote d'Ivoire (6%).
The rating actions are as follows:
Long-term IDR: affirmed at 'B-', removed from RWN
Short-term IDR: affirmed at 'B', removed from RWN
Viability Rating: affirmed at 'b-', removed from RWN