Global Rating Agency, Fitch Ratings, has released its credit rating for three tier-1 banks in the country. The banks include United Bank for Africa (UBA), Access Bank and Guaranty Trust Bank Plc (GTBank).

Fitch Ratings upgraded United Bank for Africa Plc’s (UBA) Long-Term Issuer Default Rating (IDR) to ‘B+’ from ‘B’, with a Stable outlook. Also, UBA’s Viability Rating (VR) was upgraded to ‘b+’ from ‘b’. According to Fitch, UBA’s IDRs are driven by its intrinsic creditworthiness, as defined by its VR.

“However, UBA’s VR is constrained by the operating environment in Nigeria (B+/Stable) where the fragile economic recovery restrains banks’ growth prospects and asset quality. The VR reflects UBA’s position as one of Nigeria’s largest banks, as well as its sound financial metrics and reasonable capital buffers. It controls an overall market share in Nigeria of approximately 10% and its well-established franchise is a rating strength.”

Access Bank Rating

Fitch Ratings affirmed Access Bank Plc’s Long-Term Issuer Default Rating (IDR) at ‘B’ with a Stable Outlook. The Viability Rating (VR) is affirmed at ‘b’.

According to the Fitch, Access Bank’s VR reflects adequate profitability, although this is weaker than its other immediate peers. Relative earnings weakness reflects a higher cost structure and a modest retail franchise, resulting in a higher cost of funding than its peers.

“Efforts to attract new retail depositors, particularly through digital channels continue. Liquidity ratios are sound, with cash holdings and government securities representing around 40% of total assets.”

Foreign currency refinancing risks for Access Bank have eased with the bank issuing a five-year USD300 million 10.5% Eurobond in October 2016 (issued by Access Finance BV), which partly refinanced a USD350 million 7.25% Eurobond bond maturing in July 2017.

GTBank Rating

Fitch Ratings revised the Outlook on Guaranty Trust Bank Plc’s (GTBank) Long-Term Issuer Default Rating (IDR) to Stable from Negative and affirmed the IDR at ‘B+’. Fitch also upgraded GTB’s Long-Term National Rating to ‘AA(nga) from ‘AA-(nga)’.

The rating noted that GTBank’s IDRs are driven by the bank’s intrinsic creditworthiness as defined by its Viability Rating (VR). GTBank’s VR is the highest assigned by Fitch to a Nigerian bank. The rating further noted that GTBank is one of Nigeria’s largest banks, controlling an overall domestic market share of approximately 11%.

Why the ratings are so important

Credit ratings are used by investors as indications of the likelihood of receiving the money owed to them in accordance with the terms on which they invested. The investment grade and speculative grade have established themselves over time as shorthand to describe the categories ‘AAA’ to ‘BBB’ (investment grade) and ‘BB’ to ‘D’ (speculative grade). The Investment grade categories indicate relatively low to moderate credit risk, while ratings in the speculative categories either signal a higher level of credit risk or that a default has already occurred.

Fitch Ratings is a global provider of credit ratings and research. Founded in 1913, the company is part of the Fitch Group based in New York. It is one of the Big Three credit rating agencies in the world.

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