The foremost American credit rating agency, Fitch Ratings has revised the National Long-Term and Short-Term Ratings of Guaranty Trust Bank Plc (GTBank) and Zenith Bank Plc to ‘AA(nga)’ and ‘AA-(nga)’; ‘F1+(nga)’ from ‘F1(nga)’ respectively.
This is against GTB’s initial rating of A+ for National Long term rating and F1 for National Short term rating, and then Zenith Bank’s initial rating of A+ for National Long term rating and F1 for National short term rating.
According to the information available from Fitch, the revised rating follows the recalibration of the Nigerian National Ratings Scale due to the downgrade of the sovereign on 6 April 2020. Rating revisions are used to modify ratings for reasons that are not related to changes in credit quality.
National scale ratings are a risk ranking of issuers in a particular market, designed to help local investors differentiate risk. Nigeria’s national scale ratings are denoted by the unique identifier ‘(nga)’. National scales ratings are not comparable to Fitch’s international scales ratings or to other countries’ national scale ratings.
(READ MORE: UPDATE: Fitch downgrades Nigeria’s IDR to “B”, says CBN’s remedial policy not enough)
Key rating drivers
“The recalibration of the Nigerian national rating scale has resulted in the upward revision of the National Long- and Short-Term Ratings of GTB and Zenith. The differentiation between the National Long-term Ratings of GTB and Zenith is made possible by greater details under the recalibrated Nigerian national rating scale, which allows us to differentiate further between the National Ratings of Nigerian issuers.
“The Rating Watch Negative (RWN) on the National Long-Term Ratings, and debt ratings where relevant, reflect their expectation that all Nigerian banks will face material pressures from a weaker operating environment over the next few months, given the oil price crash, a potential further devaluation of the Nigerian naira and the impact of the COVID-19 pandemic on individuals and businesses,” it stated.
Rating sensitivities
The National Ratings of the two banks are sensitive to a change in their creditworthiness relative to other Nigerian issuers.
Factors that could individually or collectively lead to negative rating action/upgrade are:
Downside risk, which could be as a result of weakening in the banks’ standalone credit profiles, especially if there is sustained material deterioration in asset quality, profitability, and capital metrics. Nigerian banks face very challenging conditions due to pressures in the domestic operating environment. Downside risks are heightened by the coronavirus outbreak especially if periods of lockdown, oil price weakness, and global economic turmoil extend into 2020, giving rise to more severe economic and financial market fallout.
