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Fitch rates 3 Nigerian banks lower to ‘B’, places others on negative watch

Fitch Ratings has downgraded the three-highest rated banks in Nigeria – Zenith, GTB and UBA to Long-Term Issuer Default Rating (IDR) ‘B’ and Viability Rating (VR) ‘b’.

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Fitch Ratings

Fitch Ratings has dropped the ratings of (three of the Tier 1 banks in Nigeria) Zenith Bank, Guaranty Trust Bank, and United Bank for Africa to Long-Term Issuer Default Rating (IDR) ‘B’ and Viability Rating (VR) ‘b’.

The rating also placed the Long-Term IDRs, VRs and National Ratings of all 10 rated Nigerian banks (excluding Stanbic IBTC Holdings – SIBTCH and Stanbic IBTC Bank – SIBT, which are not assigned VRs and IDRs) on Rating Watch Negative (RWN).

What it means: RWN reflects Fitch’s expectations that all Nigerian banks will face material pressures from a weaker operating environment over the next few months given the oil price crash, potential further devaluation of the Nigerian naira and the impact of the COVID-19 pandemic on individuals and businesses.

It stated, “While the full extent is not yet known, it is our view that ‘b+’ VRs and ‘B+’ IDRs are no longer compatible with the deteriorated operating environment.”

It is important to note that before the current crisis, Fitch’s sector outlook for the Nigerian banking sector was negative, which reflected tough operating conditions, including slow GDP growth, rising regulatory risks and potential performance pressures.

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According to the rating, Nigerian banks’ credit profiles are expected to suffer from weaker asset quality and reduced profitability in the more severe downside scenario.

[READ MORE: Fitch to downgrade Nigeria’s credit rating if …)

According to Fitch, the current oil price shock would adversely impact the oil and gas sector. “This sector accounts for around 30% of the banking sector’ gross loans, of which a large proportion was restructured during the previous crisis (some are still classified as Stage 2 under IFRS 9).

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“Our stress tests show that asset-quality risks arising from deterioration of the banks’ oil and gas exposures are the biggest threat to their ratings. Additionally, we expect the non-oil segment to be impacted by the slower economy, but also due to the COVID-19 crisis, which could severely affect communities and industries. It would particularly test the quality of consumer and SME loans.”

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Lower oil revenues also raise the prospect of a material naira devaluation, which would put pressure on the banks’ regulatory capital ratios.

However, given the banks’ net long foreign-currency positions, Fitch’s stress tests show that in most cases the impact on Fitch Core Capital (FCC) ratios is tolerable under several scenarios.

“Nigerian banks have reasonable loss-absorption buffers, underpinned by strengthened capitalisation since the last crisis. In the near term healthy earnings will continue to absorb larger credit losses but future profits will be under pressure from slowing loan growth,” it added.

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Other effects are reduced client activity and higher levels of provisioning for expected credit losses under the IFRS 9 accounting framework.

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On balance, the near-term impact from the oil price shock and COVID-19 on funding and liquidity is likely to be tolerable. The primary risk is that lower oil revenues (and Nigeria’s falling FX reserves) could limit banks’ access to foreign currency (FC) liquidity.

Furthermore, adverse global conditions could impede some banks in raising external financing. Local-currency liquidity remains strong with banks funded mainly by low-cost customer deposits.

Meanwhile, Central Bank of Nigeria (CBN) had announced relief measures, which should alleviate some near-term asset-quality pressures. These include requesting banks to restructure loan tenors and terms for consumers and business that are most affected, particularly borrowers in the oil and gas, agriculture and manufacturing sectors.

Fitch will resolve the RWN once it has assessed how this economic shock impacts the banking system and the credit profiles of each bank, as well as the banks’ ability to adapt. Fitch expects to resolve the RWNs in the next six months.

[READ ALSO: How the latest Fitch report affects you in 2020)

Key rating drivers

IDRs and VRs: The Long and Short-term IDRs of Nigerian banks are driven by their standalone credit profiles as determined by their VRs. Long-Term IDRs range from ‘B’ to ‘B-‘, reflecting Nigeria’s challenging and volatile operating environment, which highly influences the banks’ financial and non-financial rating factors.

Asset-quality metrics, which have improved over the last three years owing to restructuring, recoveries and write-offs, are likely to deteriorate in 2020 due to the current shocks. This will also put increasing pressure on earnings, profitability and capitalisation. The risks to funding and liquidity are mainly from disruption in FC liquidity.

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Support ratings and support rating floor: Fitch believes that sovereign support to Nigerian banks cannot be relied on given Nigeria’s (B+/Negative) weak ability to provide support, particularly in FC.

Therefore, the Support Rating Floor (SRF) of all Nigerian banks is ‘No Floor’ and all Support Ratings (SRs) are ‘5’. This reflects our view that senior creditors cannot rely on receiving full and timely extraordinary support from the Nigerian sovereign if any of the banks become non-viable.

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Nationa ratings: The National Ratings reflect the creditworthiness of the Nigerian banks relative to other issuers in Nigeria. The National Ratings of SIBTCH and SIBTC are the highest in Nigeria, reflecting our view of potential support from parent Standard Bank Group (BB+/Negative) if required. The RWN on the 10 other commercial banks’ National Ratings reflect our view that their standalone credit profiles are weakening in the current downturn.

Olumide Adesina is a France-born Nigerian. He is a Certified Investment Trader, with more than 15 years of working expertise in Investment Trading and Financial Market Analysis. Member of the Chartered Financial Analyst Society. You can follow Olumide on Twitter @tokunboadesina or email [email protected]

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Business News

Lagos state moves against fake news and inciting messages merchants

The government has warned fake news and inciting message merchants to stop their evil enterprise or face legal consequences.

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The Lagos State Government has warned against fake news and inciting messages as they react to videos in social media and online space, creating tension and encouraging ethnic conflicts.

This was contained in a statement that was issued by the Lagos State Commissioner for Information and Strategy, Gbenga Omotosho, on Saturday, October 24, 2020.

In the statement, Governor Babajide Sanwo-Olu urged Lagosians to disregard the videos, which are the tools of anarchists, whose plan is to create hatred and divisiveness for which Lagos is not known for.

The statement partly reads, ‘’Inciting videos of this nature are not what our land needs now, following the loss of lives and destruction that fake news, misinformation and unfounded rumours have triggered in our dear state in the last couple of days.

‘’The government appeals to Lagosians to disregard the calls of ethnic and religious jingoists as well as agents of destruction who are on a mission to destroy our state by pitching us against one another for yet to be ascertained reasons. This is a very critical moment for us as a people. It is, therefore important that we stand together and remain circumspect because the brewery of falsehood is unrelenting in its mission.’

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The commissioner said Lagos State is the melting point of various cultures, tribes and religions across Nigeria and noted we have co-existed harmoniously for ages and will continue to live together peacefully.

He pointed out that the sad incident of the past few days affected everyone who lives, trades or works in Lagos, regardless of their tribe, culture, race and religion. He said this is a time for us to empathize with one another and not listen to purveyors of evil messages, especially on social media.

Omotosho said the government will continue to protect lives and property and warned fake news and inciting message merchants to stop their evil enterprise or face the legal consequences of their destructive actions.

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Appointments

TCN MD, Sule Abdulaziz appointed Chairman of West Africa Power Pool

The acting Managing Director of TCN, Sule Abdulaziz, has been appointed the new Chairman of WAPP.

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TCN MD Abdulaziz, four other directors receive appointment letters

The acting Managing Director of Transmission Company of Nigeria (TCN), Sule Abdulaziz, has been appointed the new Chairman of the Executive Board of West African Power Pool (WAPP). Abdulaziz was nominated by the former Managing Director of Power Holding Company of Nigeria (PHCN), Joe Makoju, who is an honorary member of WAPP.

READ: NNPC signs gas development and commercialization deal with SEEPCO

This disclosure was made by TCN’s General Manager, Public Affairs, Mrs Ndidi Mbah, through a public statement in Abuja on Thursday, October 22, 2020.

In her statement, Mbah revealed that the West African Power Pool was created by Decision A/DEC.5/12/99 of the 22nd Summit of the ECOWAS Authority of Heads of State and Government, and adopted during the 29th Summit of the ECOWAS Authority of Heads of State and Government held in Niamey, Niger.

READ: Indian firm, Ramco signs partnership deal with Nigerian airline

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The appointment was made during the 46th meeting of the WAPP Executive Board which was chaired by the Secretary-General of ECOWAS, Ki Sengui, and held through video conference on October 21.

The statement from Mba partly reads, “While making the nomination, Makoju noted that Abdulaziz is an expert in engineering with vast experience in the electricity sector and therefore will perform creditably as the new WAPP Executive Board Chairman.

READ: Continental Reinsurance Plc acquires 100% ownership of its Botswana subsidiary

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“His proposal was endorsed by MDs and Director Generals and other members of the board,” she said.

According to the statement, Abdulaziz in his acceptance speech thanked the board members and the honourary members for his nomination as the Chairman of the board and assured them of his total commitment to the overall objective of the regional electricity body.

READ: A bitter family feud has continued to hamper this company’s growth

He also expressed the need to move the pool to the next level of operational efficiency and solicited the support of member utilities, especially members of the executive board in this regard.

Explore Data on the Nairametrics Research Website 

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He urged members to ensure prompt payment of their contributions to the pool and also continue to collaborate actively with the secretariat to ensure effective and efficient coordination and implementation of all WAPP programmes.

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ENDSARS

President Buhari to address Nigerians on Lekki toll plaza shootings after investigation 

Minister of Sports says President Buhari will address Nigerians on the Lekki Toll Plaza shootings at the completion of investigations.

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President Buhari to address Nigerians on Lekki toll plaza shootings after investigation , Youth Investment Fund:  Ministry of Finance and CBN to launch provision of funds- Minister

President Buhari will address Nigerians on the Lekki toll Plaza shootings, as he awaits the outcome of the investigations into the shootings of unarmed #EndSARS protesters by soldiers.  

This disclosure was made by Mr. Sunday Dare, the Minister of Youth and Sports Development, during an interview with Arise TV on the unrest and uncertainties gripping Nigeria following the protests over police brutality. 

READ: #EndSARS: United Nations condemns the use of excessive force by Nigerian Armed Forces

The Minister emphasized that the President during the National Security Meeting yesterday has ordered an investigation into the Lekki Toll Plaza shooting, and thereafter he would speak on the incident. 

READ: #EndSARS Protests: Osinbajo commiserates with victims of Lekki shootings

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What they are saying 

When asked by Charles Aniagolu of Arise TV why the President hasn’t made an official statement on the unfortunate event at the Toll Plaza, Mr. Dare explained in his response that President Buhari hasn’t made a statement on the tragedy because he wants to have all the facts, which will absolutely be made public.  

READ: Buhari presented with gold bars mined in Zamfara as Nigerian prepares to launch PAGMI scheme.

“It is important to get all the facts right before we go forward. In this case, it’s going to be difficult to hide these facts because we live in a multimedia world and we have pieces of evidence and corroboration and I think it is important to get the facts right.

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READ: #EndSARS: Feminist Coalition raise Cryptos worth $126,000

“I think that’s the part the President has towed and I am sure that when the facts are made available, this President – because he has integrity – will level with the Nigerian people about what happened on Tuesday in Lekki.” 

Mr. Sunday Dare said the present administration’s commitment to protecting the rights of all citizens is unshaken. He reiterated that in line with this core mandate, a presidential pronouncement was made by the Presidency to permanently dissolve the notorious SARS group. 

Explore Data on the Nairametrics Research Website 

He disclosed that the level of responsiveness and concrete steps that the President has taken to stem down civil unrest in the country is commendable, as the #5 of 5 demands are fully accepted by the President. 

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