Moody’s puts three Nigerian banks on review for downgrade

LAGOS, Nigeria, Capital Markets in Africa — Moody’s Investors Service has placed on review for downgrade the long-term ratings of three Nigerian banks—Access Bank plc (Ba3/B1 RUR down, b2 RUR down), Sterling Bank plc (B2 RUR down, b3 RUR down) and Bank of Industry (Ba3 RUR down).

In a statement, the ratings agency said that the reviews are driven by the potential weakening of the Nigerian Government’s capacity and willingness to provide support to the banks in times of stress, if needed.

At the same time, the baseline credit assessments (BCAs) of Access Bank plc and Sterling Bank plc, the two commercial banks Moody’s rates in Nigeria, have also been placed under review for downgrade due to the increasing risk posed by the oil sector for the banks, but also the negative implications of low oil prices on the domestic economy more broadly.

Moody’s predicts reduced fiscal spending and currency devaluation that will pose additional asset quality risks as well as funding and liquidity challenges.

The reviews of the banks’ ratings were triggered by the weakening of Nigeria’s credit profile, as captured by Moody’s placement of the government’s issuer rating on review for downgrade on 4 March 2016.

“We see a risk that prices may recover much more slowly over the medium term than many companies had expected. Even under a scenario of a modest recovery from the current oil prices, however, we expect a range of borrowers to face deteriorated financial profiles, with weaker cash flows,” Moody’s stated.

“If prolonged, higher funding costs and constrained market access for corporate borrowers could have a larger impact on investment and economic growth than currently incorporated in our forecasts and ratings,” it said.