Fitch Ratings yesterdayv downgraded First Bank of Nigeria Ltd’s (FBN) and United Bank for Africa’s (UBA) the Long-Term Foreign Currency Issuer Default Ratings (IDRs) to ‘B’ from ‘B+’.
The agency has also downgraded the National Long-Term Rating of FBN Holdings Plc (FBNH), the parent holding company of FBN, to ‘BBB+ (nga)’ from ‘A(nga)’.
Fitch has at the same time affirmed the IDRs of eight other Nigerian commercial banks and affirmed the Viability Ratings (VR) of all the banks.
The Outlook on the Long-Term Foreign Currency IDR of one of the banks, Guaranty Trust Bank (GTB), was revised to Stable from Negative due to continuing strong earnings and stronger-than-expected liquidity.
According to Fitch since the last review in February 2016, bank asset quality has continued to weaken with average impaired loans (NPL) ratios of about 6.2% at end-March 2016, with FBN’s NPL ratio at a high of 21.5%.
Fitch notes:
“Impairments in banks are increasing in the commercial, trading and manufacturing segments, mainly due to foreign currency depreciation and scarcity. NPLs in the oil sector are also rising, but most of the larger problem loans are being restructured. FBN’s high NPL ratio is mainly due to the bank’s exposure to the downstream oil sector. Sustained low oil prices and continuing production disruptions in the Niger Delta could cause industry NPL ratios to rise more dramatically.”
Fitch also expects loan impairments to rise in the wake of the naira devaluation, saying:
“Devaluation will primarily affect those Nigerian companies that are not adequately hedged by foreign currency income streams, and which will find it more difficult to service their foreign currency loans at the current exchange rate. The devaluation could also affect customer demand in the domestic economy.”
