Fitch Ratings has downgraded the three-highest rated banks in Nigeria, Zenith Bank (Zenith), Guaranty Trust Bank (GTB) and United Bank for Africa (UBA), 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).
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.
“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,” Fitch stated.
Even 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.
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.
Based on experiences from 2015/2016, Fitch expects that 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).
“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.”