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TEXT-Fitch affirms Ecobank Transnational Inc
November 1, 2012 / 3:41 PM / 5 years ago

TEXT-Fitch affirms Ecobank Transnational Inc

(The following statement was released by the rating agency)
    Nov 1 - Fitch Ratings has affirmed Togo-based Ecobank Transnational
Incorporated       (ETI)'s, the holding company of the Ecobank 
group (Ecobank), Long-term Issuer Default Rating (IDR) at 'B-' with a Stable 
Outlook, Short-term IDR at 'B', Viability Rating (VR) at 'b-', Support Rating at
'5' and Support Rating Floor at 'NF'. A full list of rating actions is at the 
end of this rating action commentary.

RATING ACTION RATIONALE: IDRs and VR

The affirmation of ETI's IDRs with a Stable Outlook and VR reflect its resilient
performance, the progress made with respect to the integration of Oceanic Bank 
Nigeria (Oceanic; a Nigerian bank acquired in H211) into Ecobank Nigeria (EN) 
and related gradual return to profitability of EN (44% of group assets at 
end-H112), and improvements in the risk management framework. The IDRs continue 
to reflect ETI's low capital position, despite the recent new equity raised.

RATING DRIVERS: IDRs and VR

ETI's IDRs are based on its individual risk profile and therefore are aligned 
with its VR. ETI's VR reflect its low capital levels in a fast-growing but still
volatile operating environment, vulnerable to economic and political shocks; it 
also takes into account the tight liquidity at holding level. The VR also 
reflects satisfactory profitability, which is supported by geographical 
diversification, the group's adequate liquidity as well as improvement in asset 
quality (although largely due to sale of problematic loans). 

ETI has raised substantial equity (USD350m) in 2011-2012. Nevertheless, Fitch 
considers that ETI's consolidated capitalisation (Fitch core capital: 8.5% at 
end-H112) is low, given potential asset quality volatility across the group's 
subsidiary banks. Fitch considers that ETI's double leverage (investment into 
its subsidiaries relative to ETI's equity, 125.5% at end-H112) is high. ETI has 
a large potential repayment due in 2014 of a bullet convertible loan from 
Nedbank (25% of ETI's liabilities at the holding level) if not converted or 
refinanced.

ETI's standalone performance was adequate and is likely to remain stable for 
2012 as EN, its main operating subsidiary, is returning to profitability. ETI''s
consolidated profitability and efficiency indicators have weakened in H112 but 
reflected Oceanic's integration in 2011 and H112 and should improve in 2013. 
ETI's non-performing loans (+90 days overdue loans) ratio stood at 5.6% at 
end-H112 and has strongly benefited from the write-off and sales of problematic 
loans since 2011, essentially to AMCON, the state-owned Nigerian company set up 
to help restore Nigerian banks' balance sheet. Fitch believes that some asset 
quality migration could result from ETI's restructured loans (classified as 
standard) and watch loans.

ETI was one of the largest pan-African banking groups present in 32 countries in
Africa at end-H112. The countries were non-rated or rated between 'B' and 'BB-' 
(69.5% of the group's total assets). ETI aims at having a banking subsidiary 
among the top three banks in each of the countries where it has operations. At 
end-H112, 13 of the subsidiaries (representing 36% of group assets) ranked at 
least third by total assets in their respective countries.

SENSITIVITIES: IDRs and VR

Weaker capitalisation as result of aggressive expansion, material deterioration 
of asset quality or a sizeable drop of EN's performance, could lead to a 
downgrade of ETI's VR. Destabilised liquidity could also trigger a negative 
rating action. Triggers for an upgrade include a track record of improved 
performance at ETI and stabilised asset quality combined with materially 
strengthened capitalisation.

RATING DRIVERS AND SENSITIVITIES: Support Rating and Support Rating Floor 

Fitch considers that ETI's main operating subsidiary, EN, may benefit from 
potential limited support from Nigeria ('BB-'/Stable) if required given that it 
has become one of the largest banks in Nigeria after the acquisition of Oceanic.
However, Fitch estimates that potential sovereign support from Nigeria is 
unlikely to extend to ETI, if required. Fitch believes that the largest 
shareholders (AMCON, the International Financial Corporation and Public 
Investment Company of South Africa) are long term but financial investors only 
and their ownership in ETI is not strategic for the businesses of the respective
shareholders. Therefore Fitch estimates that institutional support cannot be 
relied upon.

The Support Rating and Support Rating Floor could be upgraded if there was any 
change in assumptions around the increased propensity or ability of Nigeria or 
of other countries in which ETI operates to provide support. An upgrade of the 
Support Rating could also result from ETI becoming a strategic investment for 
some of the shareholders combined with majority ownership in ETI and/or close 
integration of ETI's operations with those of the potential strategic 
shareholder(s). 

The rating actions are as follows: 
Long-term IDR affirmed at 'B-'; Outlook Stable
Short-term IDR affirmed at 'B'
Viability Rating affirmed at 'b-'
Support Rating affirmed at '5'
Support Rating Floor affirmed at 'NF'

 (Caryn Trokie, New York Ratings Unit)

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