Moody’s Investors Service has downgraded to Caa1 from B3 the long-term deposit ratings, issuer ratings as well as the senior unsecured debt ratings (where applicable), of all the Moody’s rated banks in Nigeria.
They include Access Bank Plc, Zenith Bank Plc, First Bank of Nigeria Limited, United Bank for Africa Plc, Guaranty Trust Bank Limited, Union Bank of Nigeria Plc, Fidelity Bank Plc, FCMB (First City Monument Bank) Limited, and Sterling Bank Plc.
The rating agency also changed the outlook to stable on the long-term deposit ratings, issuer ratings as well as senior unsecured debt ratings (where applicable) of the nine rated Nigerian banks.
The lenders’ rating follows Moody’s downgrade of the long-term issuer rating last Friday of the Federal Government of Nigeria to Caa1 from B3, and changed the outlook to stable.
Also, the revised Macro Profile for Nigeria to “Very Weak” reflects Moody’s expectation that depressed and uncertain oil production, capital outflows and the government’s constrained access to external funding will likely continue to weigh on Nigeria’s external position in 2023.
The revised Macro Profile also captures the risks that foreign currency shortages in the country pose to the liquidity, capitalisation and asset quality of Nigerian banks.
As a result, the rated banks have significant direct and indirect exposure to the Nigerian sovereign, with a significant portion of their assets located in-country, and sovereign debt holdings representing 28% of their aggregate total assets as of June 2022.
The Government’s exposure links the banks’ credit profiles with the sovereign’s, whose rating was downgraded to reflect Moody’s expectation that the government’s fiscal and debt position will continue to deteriorate.
The revised Macro Profile also captures the risks that foreign currency shortages in the country pose to the liquidity, capitalisation and asset quality of Nigerian banks.
Stable Outlooks
Moody’s further explained that the stable outlooks on the long-term deposit, issuer and senior unsecured debt ratings (where applicable) of the Nigerian banks are in line with the stable outlook of Nigeria’s government rating.
This is based on the expectation that a new administration could reinvigorate the reform impetus in Nigeria after the general elections planned and thereby support fiscal consolidation, even as implementation will likely remain lengthy amid marked social and institutional constraints.
Although Moody’s believes that there is a high probability that the Nigerian government would support the bank’s senior liabilities in case of need, this does not benefit the ratings as the government itself is rated no higher than the banks’ BCA.
The Caa1 BCA reflects the challenging operating environment in Nigeria.
Explaining the factors that could lead to an upgrade or downgrade of the ratings, Moody’s said: “The ratings could be upgraded if there was a material improvement in the sovereign’s credit profile and in the local operating environment.”
It added that the ratings could be downgraded if there was:
- a deterioration in the sovereign’s credit profile, and/or;
- a significant weakening in the operating environment in Nigeria, and/or;
- a material deterioration in the banks’ solvency and liquidity.
