November 9, 2012 / 4:06 PM / 5 years ago

TEXT-S&P raises rtgs on 3 Nigerian banks to 'BB-'

7 Min Read

OVERVIEW
     -- On Nov. 7, 2012, we raised the long-term sovereign credit ratings on 
the Federal Republic of Nigeria to 'BB-' from 'B+'. The outlook is stable.
     -- Consequently, we are raising the long-term counterparty credit ratings 
on First Bank of Nigeria, Zenith Bank, and Guaranty
Trust Bank to 'BB-' from 'B+'. We are also raising the long-term
Nigeria national scale ratings on the banks to 'ngAA-' from 'ngA+'. 
     -- The stable outlook on the three banks reflects that on the sovereign 
and our view that the banks' business and financial profiles will remain 
relatively unchanged over the next 12 months.
    
     Nov 9 - Standard & Poor's Ratings Services today raised its long-term
counterparty credit ratings on First Bank of Nigeria Ltd. (FBN), Zenith Bank PLC
(Zenith), and Guaranty Trust Bank PLC (GTB) to 'BB-' from 'B+'. At the same
time, the 'B' short-term counterparty credit ratings on all three banks were
affirmed. The outlooks are stable. We also raised the Nigeria national scale
long-term ratings on FBN, Zenith, and GTB to 'ngAA-' from 'ngA+' and affirmed
the 'ngA-1' short-term ratings.

RATIONALE
The rating actions on FBN, Zenith, and GTB follow the upgrade of the Federal 
Republic of Nigeria (see "Long-Term Rating On Nigeria Raised To 'BB-' On 
Improved Fiscal And External Buffers And Strong Growth; Outlook Stable," 
published on RatingsDirect on Nov. 7, 2012). The sovereign upgrade reflects 
our view of an improvement in the government's fiscal buffer and external 
position, as well as ongoing reform momentum. We believe these factors will 
benefit the three rated Nigerian banks through the improved quality of their 
large exposure to the sovereign (treasury bills and other government or 
government-related debt account for about 25%-30% of the banks' total assets) 
and expected strong economic growth, especially in the non-oil sector. 

Standard & Poor's does not rate Nigerian banks above the foreign currency 
sovereign credit ratings because of the direct and indirect influence the 
sovereign in distress would have on a bank's operations, including its ability 
to service foreign currency obligations. The long-term counterparty credit 
rating on Zenith remains constrained by the 'BB-' foreign currency sovereign 
credit rating on Nigeria. 

The ratings on FBN and GTB reflect their SACPs of 'bb-'.

FIRST BANK OF NIGERIA

The stable outlook on FBN reflects the stable economic environment and our 
view that the bank's business and financial profiles will remain relatively 
unchanged over the next 12 months. We expect FBN to retain its strong market 
position as Nigerian banking sector leader, with relatively stable revenues 
and moderate geographic diversification. The bank's capitalization should 
remain in the 5%-6% range under Standard & Poor's risk-adjusted capital (RAC) 
methodology, but there could be downward ratings pressure if loans grow faster 
than we currently anticipate. In our view, positive economic prospects should 
keep asset quality and loss experience at currently good levels, although a 
focus on lending to midsize companies may pressure this in the next 12-18 
months. We could lower the ratings if the bank's capitalization deteriorates, 
specifically if we forecast the RAC ratio to go to below 5% in the next 18 
months. We could also lower the ratings if the inherent risks in the loan 
book, such as foreign currency lending and high single-name and industry risk 
concentrations materialize and loan-loss or asset-quality indicators 
deteriorate, or if loan growth reaches unsustainably high levels. We are 
unlikely to raise the ratings in the short term. This would only follow a 
sovereign upgrade and improvements in the bank's business and/or financial 
profiles. A sovereign downgrade would trigger a downgrade of the bank.

GUARANTY TRUST BANK
The stable outlook on GTB reflects the stable economic environment and our 
view that the bank's business and financial profiles will remain relatively 
unchanged over the next 12 months. In our view, the positive economic 
prospects in Nigeria will further support GTB's business relationships and 
earning capacity. We anticipate that GTB's capitalization will increase 
slightly over the next 12-18 months, owing to a strong earning capacity that 
comes from high margins and low cost of risk. We also assume that GTB will 
maintain its stable funding and liquidity profile.

We would raise the ratings on GTB if the bank's sector and single-name 
concentrations were to reduce, as well as if its cost of risk becomes 
significantly lower than sector peers. An upgrade would also require the 
long-term foreign currency sovereign credit ratings to be raised.

We could lower the ratings on GTB if its financial profile were to deteriorate 
significantly. Although unlikely, this could follow a sharp deterioration in 
asset quality and a change in risk appetite. A sovereign downgrade would 
trigger a downgrade of the bank.

ZENITH BANK
The stable outlook on Zenith reflects that on the sovereign and our view that 
the bank's business and financial profile will remain relatively unchanged 
over the next 12 months. We anticipate that the positive economic prospects in 
Nigeria will support Zenith's financial performance.

We would raise the ratings on Zenith if we were to raise the ratings on the 
sovereign, provided that the bank maintained an SACP of at least 'bb'. A 
downgrade of the sovereign rating would trigger a downgrade of the bank.

RELATED CRITERIA AND RESEARCH
     -- Bank Hybrid Capital Methodology And Assumptions, Nov. 1, 2011 
     -- Banks: Rating Methodology And Assumptions, Nov. 9, 2011 
     -- Group Rating Methodology And Assumptions, Nov. 9, 2011 
     -- Use Of CreditWatch And Outlooks, Sept. 14, 2009

RATINGS LIST
                                        To                 From
First Bank of Nigeria PLC
Zenith Bank PLC
Guaranty Trust Bank PLC
 Counterparty Credit Rating             BB-/Stable/B       B+/Positive/B
 Counterparty Credit Rating
 Nigeria National Scale                 ngAA-/--/ngA-1     ngA+/--/ngA-1
N.B.-This does not include all ratings affected.




Complete ratings information is available to subscribers of RatingsDirect on 
the Global Credit Portal at www.globalcreditportal.com. All ratings affected 
by this rating action can be found on Standard & Poor's public Web site at 
www.standardandpoors.com. Use the Ratings search box located in the left 
column.

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below