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Nigerian Banks Becoming Vulnerable To High Credit Risk— Moody’s

Ololade Omosan-Agie

Moody’s has released credit ratings for the Nigerian banking sector with banks trapped in the vulnerability of high credit risk.

Banks rated B are considered speculative and are subject to high credit risk. The obligations rated B2 are considered speculative and are subject to high credit risk. Rating one notch higher is B1, while rating one notch lower is B3.

In a report, Moody’s rated First Bank of Nigeria Limited B2 deposit ratings.

It said, “First Bank’s B2 long-term deposit ratings incorporate a one notch uplift of government support from its b3 Baseline Credit Assessment (BCA).

“First Bank’s BCA reflects its reducing but still-high asset risk and modest capital buffers compared to its peers as well as the bank’s stable deposit-based funding profile and high stock of liquidity assets.”

Fidelity Bank Plc also received B2 long-term deposit ratings incorporate a one-notch uplift from its b3 baseline credit assessment.

“Fidelity’s b3 BCA reflects the bank’s vulnerability to high asset risks due to its large proportion of foreign currency-denominated loans, a relatively tighter funding profile as reflected by its high loans-to-deposit ratio, and moderate profitability compared to its domestic peers. These challenges are moderated by the bank’s satisfactory capitalization,” said Moody’s.

First City Monument Bank Limited was rated B2. Moody’s said the B2 long-term deposit ratings incorporate a one-notch uplift of government support from the bank’s b3 baseline credit assessment.

It said, “FCMB’s b3 BCA reflects its high asset risks driven by its high single-name and sector concentrations, and its modest profitability compared with those of its top-tier domestic peers.

“These challenges are moderated by the bank’s stable retail deposit-based funding structure as well as good local currency liquidity buffers.”

Moody’s also rated Union Bank of Nigeria Plc B2 reflecting the bank’s high risk loans and credit concentrations.

Moody’s said, “Union Bank of Nigeria Plc’s (Union) B2 long-term deposit ratings reflect its B3 baseline credit assessment (BCA) as well as a one notch uplift based on Moody’s assessment of a high probability of support from the Government of Nigeria in case of need.

“Union’s B3 BCA reflects the bank’s sound capitalization, stable deposit-based funding and solid local currency liquidity supported by the bank’s retail deposit franchise.

“However, these strengths are moderated by the challenging operating environment in Nigeria, combined with the bank’s high problem loans and elevated credit concentrations.”

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