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Nigeria-Based United Bank for Africa PLC Proposed Senior Unsecured Notes Assigned 'B' Rating

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Wednesday, May 24, 2017 8:56 AM / S&P Global Ratings

S&P Global Ratings today assigned its 'B' long-term issue rating to the proposed senior unsecured notes issued by United Bank for Africa Plc (UBA; B/Stable/B). We rate these proposed notes in line with our counterparty credit ratings on UBA.


UBA operates in the top tier of the competitive Nigerian banking sector, benefitting from a sound franchise in the corporate and retail segments in its country of domicile. We also note that UBA enjoys some geographic diversification thanks to operations in 18 other African countries.


As at Dec. 31, 2016, UBA had total assets of Nigerian naira (NGN) 3.5 trillion, which is equivalent to US$11.5 billion using an NGN305/US$1 exchange rate. We estimate our risk-adjusted capital (RAC) ratio for the bank before adjustments for diversification at 5.2% for year-end 2016.


We project that the RAC ratio will remain broadly stable over the next 12-18 months, owing to the bank's good earning capacity and expected stable cost of risk. The group's exposure to oil and gas--at about 20% of total loans and concentrated in the upstream segment--has been shielded from lower oil prices (because of clients' hedges).


However, nonperforming loans (loans overdue by 90 days or more) increased to 3.9% as of Dec. 31, 2016, from 1.7% at year-end 2015. Similar to other Nigerian banking groups, UBA extends loans in U.S. dollars (about 35% of total loans at year-end 2016), but this risk appears to be mitigated by receivables in the same foreign currency.


Additional features UBA shares with its Nigerian peers are a stable and relatively low-cost, retail-deposit base and a funding profile that exhibits a contractual asset-liability mismatch, including in foreign currency.


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