Standard & Poor’s Ratings Services has revised the outlook for five Nigerian banks from stable to negative following the likely direct and indirect influence of the sovereign ratings on Nigerian banks’ operations.
The rating agency also considered the banks’ ability to service foreign currency obligations and the possibility of regulatory intervention in revising the rating.
Other reasons given by S&P for taken the decision include the high proportion of government securities (banks’ exposure to FGN bonds) and public sector deposits on their balance sheets.
The banks are: Access Bank Plc, First Bank of Nigeria Limited, and its holding company, FBN Holding Plc; Stanbic IBTC Bank Plc; Guaranty Trust Bank Plc; and Zenith Bank Plc.
The agency, however, affirmed its ‘BB-/B’ counterparty credit ratings and its Nigeria national scale ratings on these banks which it rated at the sovereign foreign currency level.
S&P in a report stated,
“We affirmed our ‘BB-/B’ long- and short-term counterparty credit ratings on the banks and our ‘B/B’ long- and short-term counterparty credit ratings on the holding company FBN Holding Plc. The outlook revision on the banks follows our similar action on.”
It said the stand-alone credit profiles (SACP) of the banks and holding company (FBN Holding) remain unchanged, despite its expectation that Nigeria’s mounting political pressures and regulatory changes are likely to test banks’ operating performances over the next 12-18 months, particularly earnings capacity and potentially cost of risk, owing to rapid loan growth.
“Nevertheless, we expect economic growth and gradual diversification, plus the currently low level of non-performing loans and sound liquidity indicators, to be broadly supportive of financial sector stability over this period.
“We factor into our ratings our opinion that the newly appointed governor of the Central Bank, Godwin Emefiele, the CEO of Zenith Bank , will continue the regulatory reform process and not weaken the roles of regulators and the government in maintaining banking sector stability, “….
“We would lower the ratings on the banks if we lowered our sovereign rating on Nigeria, as we do not rate any bank in the country above the foreign-currency ratings on the sovereign. We would also lower the ratings on the individual banks, if asset quality, operating performance, or capitalisation indicators did not meet our current expectations.
“Furthermore, if competition increased significantly (as evidenced by a weakening in credit origination standards and pricing or erratic growth), if the regulatory reform process slowed, or if we saw evidence of political interference or governance issues at the Central Bank, we would also lower the ratings on the banks,” the agency said.
Source: Thisday