Tuesday, January 25, 2022 / 02:44 PM / by Fitch  Ratings / Header Image Credit:  Ecobank Nigeria

Fitch Ratings has affirmed Ecobank Nigeria Limited's (ENG) Long-Term Issuer Default Rating (IDR) at 'B-' with a Stable Outlook. Fitch has simultaneously upgraded ENG's National Short-Term Rating to 'F2(nga)' from 'F3(nga)'.

Fitch has withdrawn ENG's Support Rating as it is no longer relevant to the agency's coverage following the publication of its updated Bank Rating Criteria on 12 November 2021. In line with the updated criteria, we have assigned a Shareholder Support Rating (SSR) of 'ccc+'. Fitch has also withdrawn ENG's Long-Term Local Currency IDR, which was published in error.

Key Rating Drivers

IDRS and Viability Rating

The IDRs of ENG are driven by its standalone creditworthiness, as expressed by its Viability Rating (VR) of 'b-'. The VR reflects the concentration of its operations within Nigeria's challenging operating environment, high credit concentrations, asset-quality weaknesses, modest profitability and weak capitalisation in the context of these risks. It also reflects a sizeable franchise and a healthy funding and liquidity profile.

ENG has moderate market shares of Nigeria's banking-sector assets (4% at end-2020) but its franchise benefits from being a subsidiary of Ecobank Transnational Incorporated (ETI; B-/Stable); a large pan-African banking group with operations spanning 33 countries across sub-Saharan Africa (SSA).

Single-borrower credit concentration is very high, with the 20 largest loans representing 69% of gross loans and 288% of Fitch Core Capital (FCC) at end-1H21. Exposure to the oil and gas sector is the highest in the banking sector (41% of gross loans; 171% of FCC at end-1H21) and is weighted towards the upstream segment, posing a significant risk to ENG's standalone creditworthiness in the event of a prolonged period of low oil prices and production cuts. Foreign-currency (FC) lending is also the highest of all banks under our coverage (54% of gross loans at end-1H21), partly reflecting high oil and gas lending. ENG intends to gradually reduce its oil and gas exposure over the medium-term.

ENG's impaired loans (Stage 3 loans under IFRS 9) ratio of 17% at end-1H21 is higher than that of peers but has improved in recent years, declining from 23.9% at end-2019 as a result of loan reclassifications, recoveries and write-offs. The impaired loans ratio is expected to decline further over the next 18 months, driven by the reclassification of two large upstream oil exposures following the commencement of production amid higher oil prices and resumption of loan growth. Specific loan loss allowance coverage of impaired loans (35% at end-1H21) is low, reflecting strong collateral coverage of the two large upstream exposures.

Stage 2 loans have declined in recent years but remain high (26% of gross loans at end-1H21). Fitch does not see a high risk of the largest Stage 2 loans, which are concentrated within the oil and gas sector, of becoming impaired. Our 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).

ENG delivers the weakest profitability of all Nigerian banks under our coverage, with operating returns on risk-weighted assets (RWAs) averaging 0.4% over the past four full years. Weak profitability is influenced by a weak net interest margin, which reflects a highly dollarised loan book, material reliance on term-deposit funding and the continued influence of a CBN directive to stop accruing interest on loans to oil marketers - to which ENG has sizeable exposure. Weak profitability has also been highly influenced by large loan impairment charges (LICs), which have eroded 76% of pre-impairment operating profit on average over the past four full years. Fitch expects profitability to improve moderately with receding asset-quality pressures and lower LICs.

ENG's FCC ratio declined to 16.2% at end-1H21 from 20.2% at end-2020, as a result of large negative fair-value adjustments on fixed-income securities held at fair value through other comprehensive income. ENG's total capital adequacy ratio (CAR; 19.6% at end-1H21) maintains a comfortable buffer above the 10% regulatory requirement for a bank with a national licence and the bank's tangible leverage ratio (10.7% at end-1H21) compares favourably with that of peers. Impaired loans net of specific loan loss allowances represented a significant 46% of FCC at end-1H21 but risks to capital are mitigated by strong collateral coverage and recovery expectations of the two large upstream impaired loans. Pre-impairment operating profit is weak, providing only a small cushion to absorb potential LICs without affecting capital.

Funding is mainly in the form of customer deposits (80% of non-equity funding at end-1H21). ENG has a material reliance on more expensive term-deposit funding (38% of customer deposits at end-1H21) but this reliance has reduced in recent years (from 47% at end-2019) and is expected to reduce further as a result of continued growth in demand and savings accounts. Deposit concentration is moderate, with the 20-largest deposits representing 24% of customer deposits at end-1H21. Non-deposit funding is mainly in the form of FC intergroup placements, a USD300 million senior unsecured eurobond due 2026 and local-currency funds for on-lending.

ENG's low gross loans/customer deposits ratio (67% at end-1H21) 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-1H21, providing healthy liquidity coverage. Our funding and liquidity assessment also considers the benefits of ordinary liquidity support from ETI.

SSR

Fitch's view of support for ENG considers the high propensity of ETI to provide support, given the former's importance to the parent's pan-African strategy as its largest subsidiary (22% of group assets at end-1H21) and it operating in SSA'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.

However, ETI's ability to provide support, if required, is constrained by its creditworthiness and ENG's large size relative to that of the group. ENG's SSR of 'ccc+' therefore reflects Fitch's view that, although possible, extraordinary support cannot be relied on.

National Ratings

ENG's National Long-Term Rating of 'BBB(nga)' is constrained by the bank's high credit concentrations, asset-quality weakness, modest profitability and weak capitalisation in the context of these risks. ENG's National Short-Term Rating has been upgraded to the higher of two possible options for a 'BBB(nga)' National Long-Term Rating under Fitch's criteria, reflecting an improved funding and liquidity profile, which reduces the vulnerability of default on the bank's short-term local-currency obligations within Nigeria.

Senior Unsecured Debt

Senior unsecured debt issued through EBN Finance Company B.V. is rated at the same level as ENG's Long-Term IDR, reflecting Fitch's view that the likelihood of default on these obligations is the same as the likelihood of default of the bank. The Recovery Rating of these notes is 'RR4', indicating average recovery prospects.

Rating Sensitivities

Factors that could, individually or collectively, lead to negative rating action/downgrade:

• A downgrade of the Long-Term IDR and VR would most likely result from increased asset-quality pressures, as indicated by increased impaired loans or reduced recovery prospects for existing impaired loans, that lead to operating losses and a decline in capital metrics
• A weakening in ETI's ability or propensity to provide support would lead to a downgrade of the SSR. Reduced ability to provide support would most likely be indicated by a downgrade of ETI's Long-Term IDR

Factors that could, individually or collectively, lead to positive rating action/upgrade:

• An upgrade of the Long-term IDR and VR would require a significant improvement in asset quality and profitability and reduced credit concentrations while maintaining acceptable capital ratios

Best/Worst Case Rating Scenario

International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance.

ESG Considerations

Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. 

Related News on Ecobank Nigeria

1. KPMG Lists Ecobank Nigeria Among Top Five Customer Experience Leaders in Nigeria
2. Ecobank Nigeria Partners Learntor; Supports Youths Training in Bespoke Digital Technology
3. Ecobank Nigeria: A Journey to the Top
4. Ecobank Nigeria Unveils Admiralty Way Branch with 24-7 Digital Experience Centre
5. Ecobank Nigeria Wins "Consumer Finance Product Of The Year"
6. Ecobank Nigeria to Sustain SMEs Support, Grow Agency Banking Network In 2022
7. Ecobank Nigeria Warns Flour Mills Against Honeywell Deal
8. Ecobank Nigeria Sensitises Customers On e-Naira
9. Ecobank Nigeria leads Sensitization on Mental Health in Nigeria
10. Ecobank Nigeria Board Announces the Appointment of Bola Adesola as New Chairman

Related News - Rating Agencies on Nigeria

1. Moody's Changes Nigeria's Outlook to Stable, Affirms B2 Ratings
2. Moody's Announces Completion of a Periodic Review of Ratings of Nigeria
3. Fitch Affirms Nigeria at ''B''; Outlook Stable
4. Fitch Revises Nigeria's Outlook to Stable, Affirms at 'B'
5. S and P Global Ratings Affirmed Nigeria's Long-Term Rating At 'B-'; Outlook Stable
6. Moody's Announces Completion of a Periodic Review of Ratings of Nigeria
7. Nigeria's Oil Output Cap to Weigh on Growth, External Finances
8. Moody's Affirms Nigeria's B2 Ratings, Maintains Negative Outlook
9. Fitch Downgrades Nigeria to 'B'; Outlook Negative
10. Nigeria Long-Term Rating Lowered To ''B-'' On Weakening External Position
11. Nigeria's Outlook Revised To Negative On Falling Foreign Exchange Reserves
12. Moody's Announces Completion of a Periodic Review of Ratings of Nigeria
13. Fitch Revises Outlook on Nigeria to Negative; Affirms at 'B plus'
14. Moody's Changes Nigeria's Sovereign Ratings Outlook to Negative From Stable; Affirms The B2 Ratings
15. Fitch Affirms Nigeria at 'B plus'; Outlook Stable

Related News - Rating Agencies on Banks

1. 10 Nigerian Banks Global Scale Ratings Affirmed Under Revised Criteria; Outlooks Stable
2. Moody's Affirms Bank of Industry Ratings, Changes Outlook to Negative from Stable
3. Moody's Affirms Deposit Ratings of 9 Nigerian Banks; Changes Outlook to Stable
4. Moody's Affirms Deposit Ratings of 9 Nigerian Banks; Changes Outlook to Stable
5. Fitch Rates Guaranty Trust Holding Company ''B''; Outlook Stable
6. GCR Revises UBA Plc's Long-term National and International Scale Ratings on Criteria Change
7. Moody's Assigns Provisional Ratings to the GMTN Programme of Access Bank Plc
8. GCR Upgrades Stanbic IBTC Bank Plc's SNP2 N30bn Series 1 Senior Unsecured Notes; Stable Outlook
9. Moody's Announces Completion of a Periodic Review of Ratings of Zenith Bank Plc
10. Moody's Announces Completion of a Periodic Review of Ratings of Union Bank of Nigeria Plc
11. Moody's Announces Completion of a Periodic Review of Ratings of Access Bank Plc
12. Moody's Announces Completion of a Periodic Review of Ratings of UBA Plc
13. Moody's Announces Completion of a Periodic Review of Ratings of Sterling Bank Plc
14. Moody's Announces Completion of a Periodic Review of Ratings of Guaranty Trust Bank Plc
15. Moody's Announces Completion of a Periodic Review of Ratings of FCMB Limited
16. Moody's Announces Completion of a Periodic Review of Ratings of Fidelity Bank Plc
17. Moody's Announces Completion of a Periodic Review of Ratings of First Bank of Nigeria Limited
18. GCR Affirms Wema Bank Plc's Issuer National Scale Long Term Rating; Outlook Evolving
19. GCR Upgrades Stanbic IBTC Bank Plc's National Scale Long-term Issuer Rating; Outlook Stable
20. GCR Affirms Wema Bank Plc's Issuer National Scale Long Term Rating; Outlook Evolving
21. Moody's Announces Completion of a Periodic Review of Ratings of Bank of Industry
22. Fitch Affirms Wema Bank at 'B-'; Removes Rating Watch Negative; Outlook Stable
23. Nigerian Banks' Near-Term Credit Risks Ease
24. CBN-Directed Board Changes At First Bank and FBNH Addresses Governance Issues - S and P
25. Fitch Affirms FBN Holdings' Ratings at 'B-', Negative After Board Removal by Central Bank
26. Fitch Affirms Ecobank Transnational Inc at ''B-''; Outlook Stable
27. Moody's Places First Bank's Ratings on Review for Downgrade Following Central Bank Actions
28. Fitch Revises UBA Senegal's Outlook to Stable; Affirms at 'B-'
29. Fitch Affirms Union Bank of Nigeria Plc at 'B-'; off RWN; Outlook Negative
30. Fitch Affirms First City Monument Bank at 'B-' Stable; off Rating Watch Negative
31. Fitch Affirms Sterling Bank at 'B-' Stable; off Rating Watch Negative
32. Fitch Maintains Wema Bank's Long-Term IDR of ''B-'' on Rating Watch Negative
33. Fitch Revises Bank of Industry's Outlook to Stable; Affirms IDR at 'B'
34. Fitch Affirms Fidelity Bank at 'B-'; off Rating Watch Negative; Outlook Stable
35. Fitch Affirms Access Bank at 'B'; off RWN; Outlook Negative
36. Fitch Affirms UBA at 'B'; off RWN; Outlook Stable
37. Fitch Affirms Zenith Bank at 'B'; Off Rating Watch Negative, Outlook Stable
38. Fitch Affirms Guaranty Trust Bank at 'B'; off RWN; Outlook Stable
39. Fitch Affirms FBN Holdings Plc at ''B-''; off RWN; Outlook Negative
40. S and P Global Ratings Affirmed First Bank of Nigeria Ltd Ratings, Outlook Stable
41. Fitch Affirms Coronation Merchant Bank's Rating at B-
42. Fitch Rates Coronation Merchant Bank Limited at ''B-''; Outlook Negative
43. Moody's Announces Completion of a Periodic Review of Ratings of Union Bank of Nigeria Plc
44. Moody's Announces Completion of a Periodic Review of Ratings of Sterling Bank Plc
45. Moody's Announces Completion of a Periodic Review of Ratings of Access Bank Plc
46. Moody's Announces Completion of a Periodic Review of Ratings of Fidelity Bank Plc
47. Moody's Announces Completion of a Periodic Review of Ratings of FCMB Limited
48. Moody's Announces Completion of a Periodic Review of Ratings of First Bank of Nigeria
49. Moody's Announces Completion of a Periodic Review of Ratings of Zenith Bank Plc
50. Moody's Announces Completion of a Periodic Review of Ratings of Guaranty Trust Bank Plc
51. Moody's Announces Completion of a Periodic Review of Ratings of UBA Plc
52. Moody's Announces Completion of a Periodic Review of Ratings of Bank of Industry
53. Moody's Announces Completion of a Periodic Review of Ratings of Bank of Industry
54. Coronavirus Shock Likely to Reduce Some Banks' Capital, Increase Credit Vulnerabilities
55. Fitch Maintains Access Bank's 'Aplus (nga)' National Long-Term Rating on RWN
56. Fitch Revises 2 Nigerian Banks' National Ratings
57. Banking System Outlook Update - Nigeria Outlook Changes to Negative Due to Oil Price Collapse
58. Various Rating Actions On Nigerian Banks By S and P Following Sovereign Downgrade; Outlooks Stable
59. Nigerian Banks at Severe Risk from Oil Price Slump, Coronavirus
60. Fitch Downgrades 3 Nigerian Banks to 'B', Places All 10 Banks on Negative Watch
61. Outlooks On Six Nigerian Banks Revised To Negative After Same Action On Sovereign
62. Fitch Revises Outlook on UBA Subsidiaries to Negative on Parent Action
63. Fitch Revises Outlook on 4 Nigerian Banks to Negative on Sovereign Action
64. Moody's Affirms Bank of Industry Ratings, Changes Outlook to Negative from Stable
65. Moody's Affirms Ratings of Nigerian Banks Following Action On The Nigerian Government
66. Fitch Affirms Union Bank of Nigeria Plc at 'B-'; Outlook Stable
67. Fitch Affirms Stanbic IBTC Bank at 'AAA(nga)'
68. Fitch Affirms Zenith Bank Plc at 'B' plus; Outlook Stable
69. Fitch Affirms Bank of Industry at 'B' plus; Outlook Stable
70. Fitch Affirms United Bank for Africa PLC at 'B' plus; Outlook Stable
71. Fitch Affirms Access Bank at 'B'; Stable Outlook
72. Fitch Affirms Guaranty Trust Bank at 'B' plus; Stable Outlook
73. Fitch Revises Outlook on FBNH to Stable; Affirms at 'B-'
74. S and P Global Ratings Affirmed ETI And Ecobank Nigeria Ltd Ratings; Outlook Stable
75. Fitch Rates Access Bank's Tier 2 Subordinated Debt Final 'A(nga)'
76. Fitch Affirms Ecobank Transnational Inc at 'B'; Outlook Stable
77. Access Bank 'B and B' Ratings Affirmed; Outlook Stable

Related News - Rating Agencies on Selected Companies and Notes

1. Moody's Changes Outlook to Stable on 3 Nigerian Corporates Following Sovereign Rating Action
2. Moody's Downgrades Dangote Cement Plc Ratings to B2, Outlook Negative
3. GCR Upgrades Leadway Assurance's Financial Strength Rating to "AA"
4. GCR Downgrades Mixta Real Estate Plc's Ratings Due to Significant Financial Strain
5. GCR Upgrades Mixta Real Estate's Series 1 and 2 Tranche A Bonds
6. GCR Places Geregu Power Plc's National Scale Issuer Ratings on Review Extension
7. Moody's Announces Completion of a Periodic Review of Ratings of Interswitch Limited
8. GCR Assigns an Indicative Rating of BBB (NG)(IR) with a Positive Outlook to Fidson Healthcare Plc
9. Moody's Downgrades Interswitch's Ratings to B3 from B2; Stable Outlook
10. GCR Ratings Upgrades Guinness Nigeria Plc's Rating; Stable Outlook
11. GCR Ratings Places CardinalStone Partners Limited's Credit Ratings on Review Extension
12. GCR Affirms Custodian Life Assurance Limited's Rating; Outlook Stable
13. Moody's Completes Periodic Review of Ratings of SEPLAT Following April 28, 2021 Discussion
14. Fitch Rates Seplat's New Notes Final 'B-'
15. GCR Issues Highest AAAplus (NG) and A1plus (NG) Ratings to Dangote Cement
16. Moody's Assigns Ratings to Dangote Cement Plc's DMTN Program and Proposed Series 1 Notes
17. Fitch Revises IHS's Outlook to Stable; Affirms at 'B'
18. Moody's Announces Completion of a Periodic Review of Ratings of Dangote Cement Plc
19. Moody's Announces Completion of a Periodic Review of Ratings of Interswitch Limited
20. Moody's Announces Completion of a Periodic Review of Ratings of Interswitch Limited
21. Moody's Announces Completion of a Periodic Review of Ratings of SEPLAT
22. Moody's Assigns Ratings to Dangote Cement Plc's DMTN Program and Proposed Series 1 Notes
23. Rating Actions Taken On Several Corporate Issuers With Exposure To Nigeria
24. Fitch Affirms Bharti Airtel at ''BBB-''; Off Watch Negative; Outlook Stable
25. Fitch Revises IHS's Outlook to Negative; Affirms at 'B plus'
26. Moody's Affirms Interswitch's Ratings; Outlook Remains Stable
27. Moody Changes Ratings for IHS, Seplat and DANGCEM Following Negative Rating on Sovereign Outlook
28. Moody's Assigns B2 Corporate Family Rating To Interswitch Limited; Outlook Stable

Related News - Rating Agencies on Kaduna State

1. Fitch Affirms Nigeria's Kaduna State at 'B'; Outlook Stable - Sep 14, 2021
2. Fitch Revises Kaduna's Outlook to Stable on Sovereign Action; Affirms at ''B''
3. Fitch Revises Outlook on Kaduna State to Negative on Sovereign Rating Action; Affirms at 'B'
4. Fitch Affirms Nigeria's Kaduna State at ''B''; Outlook Stable - Oct 11, 2019
5. Fitch Affirms Nigeria's Kaduna State at 'B'; Outlook Stable - May 04, 2018

Related News - Rating Agencies on Lagos State

1. Fitch Affirms Lagos State at 'B'; Upgrades National Rating; Outlooks Stable - Sep 14, 2021
2. Fitch Revises Lagos's Outlook to Stable on Sovereign Action; Affirms at 'B'
3. Fitch Downgrades Lagos State to 'B' on Sovereign Rating Action; Outlook Negative
4. Fitch Affirms Nigeria's Lagos State at 'B plus'; Outlook Stable
5. Global Credit Rating (GCR) Downgrades Lagos State’s Environmental Municipality Note
6. Fitch Affirms Lagos State at 'B' Plus; Outlook Stable
7. Fitch Affirms Nigeria's Lagos State at ''B ''; Outlook Negative