GCR Affirms Ecobank Nigeria Limited’s rating of A(NG); Rating Watch.

30 Nov 2016 In Rating Notifications

GCR Affirms Ecobank Nigeria Limited’s rating of A(NG); Rating Watch.

Lagos Nigeria, 30 November 2016 — Global Credit Ratings has today affirmed the national scale ratings assigned to Ecobank Nigeria Limited of A(NG) and A1-(NG) in the long term and short term respectively; with the outlook placed on Rating Watch. The ratings are valid until April 2017.

RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit ratings to Ecobank Nigeria Limited (“Ecobank” or “the bank”) based on the following key criteria:

The ratings of Ecobank largely reflect the adequate support (including risk management, financial and technical) from its parent, Ecobank Transnational Incorporated (“ETI”), as well as its systemic importance within the Nigerian economy, with implied support from the Federal Government of Nigeria, if required. Ecobank controlled 6.3% of Nigeria’s banking industry assets as at 31 December 2015.

Ecobank’s capital level is considered satisfactory. While its risk weighted capital adequacy ratio (“CAR”) was 18.7% at FYE15 (above the prudential floor of 15%), currency translation effects following the devaluation of the Naira has seen the CAR reduce to 16.0% at end-September 2016. Ecobank has highlighted various initiatives to shore up capitalisation through an additional capital injection by ETI, or issuance of new shares which may dilute ETI’s shareholding in the entity.

Asset quality witnessed significant pressure in F15, with the bank’s non-performing loan (“NPL”) ratio escalating to 10.2% at FYE15 (FYE14: 4.7%), largely driven by rising impairments within the trade, real estate and construction, and public utility sectors. In addition, the bank wrote off N24.4bn (FYE14: N38.1bn) in loans. While management has shifted its focus to loan recovery, resulting in the bank’s NPL ratio reducing to 7.8% at 3Q F16, GCR anticipates that the tough operating environment, and its negative effect on the bank’s obligors, combined with the bank’s high exposure to the troubled oil and gas sector, could further negatively impact asset quality indicators by FYE16.

The bank displayed a fairly liquid balance sheet at FYE15, ending the year with a liquidity ratio of 51.6%, which averaged 43.2% over the 12-month period. While the position remained well above the regulatory minimum of 30% at 3Q F16, recent policies of Central Bank of Nigeria are expected to negatively impact the industry’s (including Ecobank) liquidity profile by FYE16.

Despite recording 9.4% growth in gross revenue in F15, profitability was largely eroded by a sizeable impairment charge of N55.7bn, with Ecobank posting a lower net profit after tax of N11.3bn, relative to a review period high of N29.7bn in F14. Although management has engaged upon increased loan recovery efforts to support earnings, full year F16 performance may be moderated due to the lower economic activity and anticipated growth in staff costs.

The Rating Watch reflects potential negative action that may follow further decline in capitalisation and asset quality indicators. 

While the current ratings benefitted largely from consistently demonstrated parental support, the bank’s market position relative to the top five banks in Nigeria limits the likelihood of a rating upgrade in the medium term. Furthermore, additional weakening in profitability, particularly arising from credit losses; and further deterioration in operating conditions could result in a rating downgrade.

NATIONAL SCALE RATINGS HISTORY

Initial rating (November 2006)
Long term: A+(NG)
Short term: A1(NG)
Rating outlook:  Positive

Last rating (October 2015)
Long term: A(NG)
Short term: A1-(NG)
Rating outlook: Stable


ANALYTICAL CONTACTS

Primary Analysts
Femi Atere/Julius Adekeye
Credit Analyst/Senior Credit Analyst
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Committee Chairperson
Dave King
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APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Global Criteria for Rating Banks and Other Financial Institutions, updated March 2016
Nigerian Banking Sector Bulletin, 2016
Ecobank rating reports (2006-15)
Glossary of Terms/Ratios, February 2016


RATING LIMITATIONS AND DISCLAIMERS

ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.COM.NG/UNDERSTANDING-RATINGS. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT HTTP://GLOBALRATINGS.COM.NG/RATINGS-INFO/RATINGS-SCALES-DEFINITIONS. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE AT WWW.GLOBALRATINGS.COM.NG

SALIENT FEATURES OF ACCORDED RATINGS

GCR affirms that a.) no part of the rating was influenced by any other business activities of the credit rating agency; b.) the rating was based solely on the merits of the rated entity, security or financial instrument being rated; c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument; and d.) the validity of the rating is for a maximum of 12 months, or earlier as indicated by the applicable credit rating document.

The ratings were solicited by, or on behalf of, Ecobank Nigeria Limited, and therefore, GCR has been compensated for the provision of the ratings.

Ecobank Nigeria Limited participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.

The credit ratings above were disclosed to Ecobank Nigeria Limited with no changes to the ratings. However, the rating outlook was contested, and was reconsidered, following the provision of further material information by the entity.

The information received from Ecobank Nigeria Limited and other reliable third parties to accord the credit ratings included the latest audited annual financial statements as at 31 December 2015 (plus four years of comparative numbers), latest internal and/or external reports to management, full year detailed budgeted financial statements for 2016, most recent year-to-date management accounts to 30 September 2016, reserving methodologies and capital management policies. In addition, information specific to the rated entity and/or industry was also received.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.COM.NG/UNDERSTANDING-RATINGS. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT HTTP://GLOBALRATINGS.COM.NG/RATINGS-INFO/RATINGS-SCALES-DEFINITIONS. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE UNDERSTANDING RATINGS SECTION OF THIS SITE.

 

ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.COM.NG/UNDERSTANDING-RATINGS. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT HTTP://GLOBALRATINGS.COM.NG/RATINGS-INFO/RATING-SCALES-DEFINITIONS. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE UNDERSTANDING RATINGS SECTION OF THIS SITE.

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