GCR Affirms United Bank for Africa Plc’s rating of AA-(NG); Outlook Stable.

30 Sep 2016 In Rating Notifications

GCR Affirms United Bank for Africa Plc’s rating of AA-(NG); Outlook Stable.

Lagos Nigeria, 30 September 2016 — Global Credit Ratings has today affirmed the national scale ratings assigned to United Bank for Africa Plc of AA-(NG) and A1+(NG) in the long term and short term respectively; with the outlook accorded as Stable. Furthermore, Global Credit Ratings has downgraded the long term international scale rating assigned to United Bank for Africa Plc to B+; with the outlook accorded as Stable. The ratings are valid until August 2017.

RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit ratings to United Bank for Africa Plc (“UBA” or “the bank”) based on the following key criteria:

The ratings of UBA reflect its established franchise, and resilient financial performance despite tough operating conditions in its various markets. UBA remains one of the leading financial services groups in Sub-Saharan Africa, by geographical coverage and balance sheet size.

UBA’s capitalisation level is considered satisfactory for its current risk level, with a risk weighted capital adequacy ratio (“CAR”) of 20% (FYE14: 15.5%), well above the prudential minimum of 15%. The growth in CAR was supported by a Rights Issue (of N11.5bn) concluded in June 2015 and solid earnings retention in F15. The CAR is expected to remain strong at FYE16, given the bank’s focus on maintaining its internal capital generation capacity, together with a moderate risk appetite.

Asset quality remained stable at FYE15, with the bank reporting a non-performing loan (“NPL”) ratio of 1.7% at FYE15 (FYE14: 1.5%), although this remains one of the lowest in the industry. While GCR does not expect a significant deterioration in asset quality in the short term, concern is raised over UBA’s exposure (19.2% of total loans and advances at FYE15) to the troubled oil and gas sector, amidst persistently low and volatile oil prices and Naira devaluation, which could result in a rise in impairments by FYE16. Furthermore, note is taken of the specific arrears coverage ratio of 37.2% at FYE15, although total provisions (including general) fully covered NPLs. Audited reports as at 30 June 2016 (“1H F16”) reflect some asset quality pressure, with the NPL ratio rising to 2.4%.

Profitability firmed in F15, with UBA posting a net profit after tax of N59.7bn, translating to a sizeable growth of 24.5% over F14 earnings. Subsequently, the ROaE and ROaA rose to 20.4% and 2.2% (F14: 19.7%, 1.8%) respectively. The bank has increased efforts aimed at building alternative delivery channels and leveraging its expanded franchise, to support earnings in F16.

While the bank’s liquidity metrics are considered strong, with the regulatory liquidity ratio of 45.5% at 1H F16 (well above the prudential threshold of 30%), recent policies of Central Bank of Nigeria are expected to impact UBA’s liquidity profile by FYE16.

The negative rating trajectory on the international scale reflects Nigeria’s vulnerability to the steady drop in international oil prices, and the consequent weakening in its macroeconomic fundamentals and external position.

Significant (but not dominant) market position and a tough operating environment limit the likelihood of ratings rising in the medium term. Substantial market share and profitability enhancement, while maintaining a strong credit profile, may be ratings positive. However, negative rating action could emanate from a higher than anticipated decline in asset quality metrics.

NATIONAL SCALE RATINGS HISTORY

Initial rating (August 2000) Last rating (August 2015)
Long-term: AA(NG) Long-term: AA-(NG)
Short-term: A1+(NG) Short-term: A1+(NG)
Rating outlook: Stable Rating outlook: Stable


INTERNATIONAL SCALE RATINGS HISTORY

Initial rating (August 2013) Last rating (August 2015)
Long-term international scale: BB- Long-term international scale: BB-
Rating outlook: Stable Rating outlook: Negative


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
UBA rating reports (2000-15)
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, United Bank for Africa Plc, and therefore, GCR has been compensated for the provision of the ratings.

United Bank for Africa Plc participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of info received was considered adequate and has been independently verified where possible.

The credit ratings above were disclosed to and contested by United Bank for Africa Plc, and were reconsidered, and accorded following the provision of further material information by the entity.

The information received from United Bank for Africa Plc 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), audited financial statements for the period ended 30 June 2016, latest internal and/or external audit report to management, full year detailed budgeted financial statements for 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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