Why we revised 6 Nigerian banks outlook to negative – S&P

Kindly share this:

Why we revised 6 Nigerian banks outlook to negative – S&P

S&P Global Ratings said its review of six Nigerian banks outlook to negative from stable followed the outlook revision of the foreign currency rating on Nigeria on Feb. 28, 2020.

The rating agency stated that it does not rate financial institutions in Nigeria above the foreign currency sovereign ratings, due to the direct and indirect effects that sovereign distress would have on banks’ operations.

“The banking sector is exposed to inherently high economic imbalances because of Nigeria’s reliance on oil and its sensitivity to currency depreciation and high inflation”, S&P explained.

“This leaves banks vulnerable to asset-price shocks and asset-quality problems”, it further stated.

The six affected banks include: Access Bank Plc, Ecobank Nigeria Ltd. Guaranty  Trust Bank Plc , Stanbic IBTC Bank Plc, United Bank for Africa Plc (UBA), and Zenith Bank Plc.

S&P had revised Nigeria’s economic outlook to negative from stable due to the rapid decline in the country’s external reserves.

SEE ALSO: Depleting foreign reserves threaten naira stability

In its outlook on Nigeria released on Monday, the global rating agency said about a third of the country’s foreign-exchange reserves (put at $12 billion) are derived from offshore investors who pilled to Nigeria’s debt.

S&P is of the view that Nigeria’s forex buffer is largely dominated by non-resident holders of the Central Bank of Nigeria (CBN) Treasury Bills made the country to be “vulnerable to a change in investor sentiment.”

The rating agency said, “These holdings could be subject to changes in foreign investor sentiment and a potential sell-off, thereby creating risks to current reserve levels.

“Given these risks, we have added CBN bills to general government debt. Therefore, our estimate of general government debt, net of liquid assets, now stands at an average of 39 percent of GDP in 2020-2023.

“As a consequence of these pressures, we are revising the Nigerian banks outlook to negative from stable.

“Nigeria’s economic growth remains weak, slower than that of several peers at a similar rating level. Weak growth, sizable public debt, and external pressures are all weighing on Nigeria’s creditworthiness.

“The negative outlook over the next six-to-12 months reflects the balance of the risks from further foreign exchange (FX) pressures, ongoing weak economic performance, as well as rising government domestic and external debt.

“We may lower the ratings if Nigeria’s international reserves decline markedly, external debt rises significantly faster than our current assumptions, or if our projections of gradual fiscal consolidation do not materialize.”

S&P said it could raise Nigeria’s ratings if the West African country’s economic performance were to strengthen significantly, foreign exchange reserve levels rose, or if fiscal deficits were to reduce faster than we project.

Kindly share this:

Author: abokimallamfx