Fitch: Nigerian Bank Ratings Sensitive to Sovereign, Operating Environment

LONDON (Capital Markets in Africa): Seven Nigerian bank and two bank holding company Long-Term Issuer Default Ratings (LT IDRs) would be likely to be upgraded if Nigeria’s sovereign LT IDRs (B-/Positive) were upgraded and the entities maintained stable financial profiles, Fitch Ratings says. The Positive Outlooks on the entities’ ‘B-’ LT IDRs mirror that on the sovereign. 

The entities are Access Bank, Zenith Bank, First HoldCo, First Bank of Nigeria, United Bank for Africa (UBA), Guaranty Trust Holding Company (GTCO), Guaranty Trust Bank (GTB), Fidelity Bank and Bank of Industry (BOI).

The IDRs, except for BOI’s, are driven by standalone creditworthiness, expressed by Viability Ratings (VRs). The VRs are primarily constrained by high exposure to the sovereign through holdings of sovereign debt securities and large cash reserves at the Central Bank of Nigeria. Zenith, UBA and GTCO/GTB’s VRs are one notch below the ‘b’ implied VRs due to operating environment and sovereign rating constraints, which could ease if Nigeria’s LT IDRs were upgraded. The other banks’ VRs are in line with their implied VRs.

Fidelity has a smaller franchise than the other domestic systemically important banks but has more than doubled its paid-in capital since end-3Q24 through capital raising. It is now raising more capital to meet the increased minimum paid-in capital requirement that takes effect at end-1Q26. The improvement in core capitalisation would support an upgrade of Fidelity’s VR and LT IDR if the sovereign were upgraded.

State-owned policy bank BOI’s LT IDR is driven by a limited probability of government support, as reflected in its Government Support Rating of ‘b-’, which is equalised with Nigeria’s LT IDRs. A sovereign upgrade would indicate the government’s greater ability to provide support and would likely lead to an upgrade of BOI’s LT IDR.

First City Monument Bank, Wema Bank, Jaiz Bank and Coronation Merchant Bank’s ‘B-’ LT IDRs are also driven by their VRs, but are on Stable Outlooks. The ratings are constrained by the domestic operating environment (b-/stable), the banks’ smaller franchises and their weaker financial profiles. A positive reassessment of the operating environment score through the outlook changing to positive, or an upward revision of the score (which would require a sovereign upgrade) could lead to a similar action on the banks’ ratings if the banks materially strengthened their franchises, profitability and capitalisation. Without a sovereign upgrade, the ratings would remain capped at the level of the operating environment score.

The risk of the authorities intervening in the banking sector to support macroeconomic stability and public finances has kept the operating environment score at ‘b-’/stable despite the Positive Outlook on the sovereign since May 2024. Intervention has included a very high cash reserve ratio requirement (50%), a minimum loans-to-deposits ratio of 50% to encourage banks to extend credit despite the challenging macroeconomic conditions, the prohibition of net long foreign-currency positions, and a 70% windfall tax on realised gains on FX transactions.

Ecobank Nigeria (ENG) and Union Bank of Nigeria’s ‘CCC’ LT IDRs are driven by their VRs and reflect continuing breaches of minimum regulatory capital adequacy ratios. An upgrade of their VRs and IDRs would require restored capital adequacy ratio compliance with sufficient buffers to absorb the impact of potential further local-currency depreciation and credit losses and to mitigate credit concentration risks. ENG’s LT IDR could also be upgraded if the ability of its shareholder, Ecobank Transnational Incorporated (B-/Stable), to provide support strengthens.

Stanbic IBTC Holdings and Stanbic IBTC Bank only have National Ratings (both ‘AAA(nga)’/Stable).