GCR downgrades Unity Bank Plc’s rating to BB-(NG), placing it on Rating Watch.

23 Feb 2016 In Rating Notifications

GCR downgrades Unity Bank Plc’s rating to BB-(NG), placing it on Rating Watch.

Lagos Nigeria, 22 February 2016—Global Credit Ratings has today downgraded the national scale long-term and short-term ratings assigned to Unity Bank Plc to BB-(NG) and B(NG) respectively, with the outlook accorded as Rating Watch. The ratings are valid until June 2016.

SUMMARY RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit rating to Unity Bank Plc (“Unity Bank” or “the bank”) based on the following key criteria:

In July 2015, during its annual rating review, GCR maintained Unity Bank’s BBB-(NG) and A3(NG) long-term and short-term ratings, respectively, and accorded an ‘Evolving’ outlook to the ratings. This rating action and outlook reflected GCR’s view on the bank’s weak capital adequacy and asset quality position, and the planned remedial plans by the management. At that time, the rating triggers for the bank were described as follows: “the bank’s current relatively weak competitive positioning, and the increasing activities of bigger players in its focus market, makes an upgrade unlikely in the short term. However, the ratings will be sensitive to further deterioration in asset quality, liquidity, and higher than anticipated pressure on profitability, as well as failure to remedy its capital breach (of Central Bank of Nigeria (“CBN”) minimum capital ratios) by year end”.

The challenging operating conditions within the Nigerian economy and the banking sector in particular, has worsened the profitability, capitalisation, and asset quality position of most banks. Within this context, the lack of up to date information on Unity Bank (despite GCR’s request for additional information sent to the bank’s management in December 2015) has created uncertainties regarding the bank’s progress with its disclosed remedial plans. Consequently, the uncertainties regarding the bank’s progress with the expected remedial actions (in particular, the remedy of a regulatory capital breach by the 31 December 2015 deadline) has necessitated the downgrade of the long-term rating by 3 notches to BB-(NG) and consequently the short term rating from A3(NG) to B(NG). Nevertheless, GCR acknowledges that management continues to expend significant effort on delivering key ratios within regulatory norms. These efforts have been duly considered in the accorded ratings.

Factors supporting the accordance of a BB-(NG) rating include CBN’s recent publication on the sound status of commercial banks. GCR will continue to monitor the bank’s performance, especially in the abovementioned key areas of concern. The ratings may be positively impacted by increases in the bank’s capitalisation, liquidity and evidence of long-term asset quality improvement. The rating may face additional negative pressure if regulatory capital or liquidity ratios remain below the regulatory minimum requirement, or if significant additional evidence of asset quality deterioration becomes evident. In terms of the ‘Rating Watch’ outlook, the rating will be reviewed within the next six months.

NATIONAL SCALE RATINGS HISTORY

Initial rating (December 2012)
Long term: BBB-(NG); Short term: A3(NG)
Outlook: Stable

Last rating (July 2015)
Long term: BBB-(NG); Short term: A3(NG)
Outlook: Evolving

ANALYTICAL CONTACTS

Primary Analyst
Julius Adekeye
.(JavaScript must be enabled to view this email address)
+234 1 462 2545

Committee Chairperson
Dave King
.(JavaScript must be enabled to view this email address)


APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Global Criteria for rating Banks and Other Financial Institutions, updated March 2015
Unity Bank rating reports (2012-15)
Glossary of Terms/Ratios, February 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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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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