Fitch Ratings has ranked Ecobank Nigeria high on stable outlook and quality management.
In its latest report released yesterday, 28th January 2021, Fitch Ratings assigned the bank a Long-Term Issuer Default Rating of ‘B-‘ with a Stable Outlook, Viability Rating of ‘b-‘ and National Long-Term Rating of ‘BBB (nga)’.
The report noted that Ecobank Nigeria’s IDRs are driven by its standalone creditworthiness, as expressed by its Viability Rating.
The Viability Rating reflects the constraint of Nigeria’s challenging operating environment and modest core capital buffers amongst others. This is balanced by company profile strengths as well as a solid funding profile and good foreign-currency liquidity, which is enhanced by prudent liquidity management by the Ecobank group.
Fitch Ratings is a leading provider of credit ratings, commentary and research for global capital markets and it is one of the recognized statistical rating organizations designated by the U.S. Securities and Exchange Commission in 1975. Fitch is one of the “Big Three” global credit rating agencies, the other two being Moody’s and Standard & Poor’s.
According to Fitch, “the Stable Outlook on Ecobank Nigeria’s Long-Term IDR reflects our view that the bank has sufficient headroom at its current rating to absorb moderate shocks from sustained downside risks to the operating environment, the heightened level of risk in doing banking business in Nigeria and the ensuing risks to its financial performance (particularly asset quality) over the next 12-18 months. The Stable Outlook also reflects our expectations that capitalisation will remain resilient over this period with the bank maintaining adequate buffers over the minimum regulatory requirements”.
Fitch Rating reported that the Viability Rating benefits from Ecobank Nigeria’s company profile strengths of being part of the leading pan-African Ecobank Group.
Ecobank Nigeria is a 100% owned subsidiary of Ecobank Transnational Incorporated (ETI; B-/Stable). ETI is a regional bank holding company with fully-fledged banking subsidiaries in 33 African countries (collectively the group). The group also has a banking license in France and representative offices in Addis Ababa, Johannesburg, Beijing, London, and Dubai. The group’s operations are highly integrated, with all entities connected to a common operating platform and risk management framework, and common branding.
Ecobank Nigeria is a material subsidiary for ETI, and its largest single entity, contributing 23% of group assets at end-9M20. ETI continues to implement a turnaround strategy at Ecobank Nigeria, having deleveraged and de-risked the bank in recent years, although it returned to growth in 2020 and plans above-sector-average loan growth in the medium term.
Fitch noted that Ecobank Nigeria’s management quality is a relative strength, with ETI appointing experienced bankers to the senior team.
“Ecobank Nigeria has a solid funding profile, with low-cost current and savings accounts reaching 58% of total deposits at end-9M20 helping the bank to reduce its cost of funding. It has achieved good deposit growth through the expansion of digital channels and its financial inclusion initiatives. Retail and SME deposits to account for 58% of total customer deposits at end-9M20, which results in reasonable deposit concentration, with the top 20 customer deposits representing 29% of the total”, the report stated.
Fitch Ratings also views Ecobank Nigeria’s liquidity management as prudent with contingency plans in place. Local-currency liquidity is underpinned by a high share of liquid assets (cash, interbank placements and sovereign securities) representing more than 50% of total assets at end-9M20. ENG’s foreign-currency funding benefits from sizeable interbank deposits, which represented about 15% of total funding at end-9M20.
More than half of these deposits (about USD400 million) came from ETI’s affiliates at end-9M20. This reflects the group’s well-established inter-affiliate short-term deposit placement programme (IAP), amounting to USD650 million at end-1H20, which provides Ecobank Nigeria with a significant competitive advantage compared with most other Nigerian banks, as it is able to rely on IAP funding, when foreign-currency liquidity conditions temporarily tighten in Nigeria.
IMAGE CREDIT: Coindesk
