Fitch: Ecobank has stable outlook, quality management,
Fitch Ratings has assigned Ecobank Nigeria Limited (ENG) a Long-Term Issuer Default Rating (IDR) of ‘B-’ with a Stable Outlook, Viability Rating (VR) of ‘b-’ and National Long-Term Rating of ‘BBB (nga)’.
The report noted that Ecobank’s IDRs are driven by its stand alone creditworthiness, as expressed by its Viability Rating (VR).
The VR reflects the constraint of Nigeria’s challenging environment and modest core capital buffers, among others.This is balanced by company profile strengths as well as a solid funding profile and good foreign-currency liquidity, which is enhanced by prudent liquidity management by the Ecobank group.
According to Fitch, “the Stable Outlook on ENG’s Long-Term IDR reflects our view that the bank has sufficient headroom at its rating to absorb moderate shocks from sustained downside risks to the operating environment, the heightened level of risk in doing banking business in Nigeria and the ensuing risks to its financial performance, particularly asset quality, over the next 18 months’’.
It added: “The Stable Outlook also reflects our expectations that capitalisation will remain resilient over this period with the bank maintaining adequate buffers over the minimum regulatory requirements.”
Fitch Rating reported that the VR benefits from ENG’s company profile strengths of being part of the leading pan-African Ecobank group. ENG is a 100 per cent owned subsidiary of Ecobank Transnational Incorporated (ETI; B-/Stable). ETI is a regional bank holding company with fully-fledged banking subsidiaries in 33 African countries.
The group also has a banking licence in France and representative offices in Addis Ababa, Johannesburg, Beijing, London, and Dubai.The group’s operations are highly integrated, with all entities connected to a common operating platform and risk management framework, and common branding.
ENG is a material subsidiary for ETI, and its largest single entity, contributing to 23 per cent of group assets at end-nine month 20. ETI continues to implement a turnaround strategy at Ecobank Nigeria, having deleveraged and de-risked the bank in recent years, although it returned to growth in 2020 and plans above-sector-average loan growth in the medium term. Fitch noted that ENG’s management quality is a relative strength, with ETI appointing experienced bankers to Ecobank Nigeria’s senior team.
“ENG has a solid funding profile, with low-cost current and savings accounts reaching 58 per cent of total deposits at end-nine month 20 helping the bank to reduce its cost of funding. It has achieved good deposit growth through the expansion of digital channels and its financial inclusion initiatives.
Retail and SME deposits to account for 58 per cent of total customer deposits at end-nine month 2020, which results in reasonable deposit concentration, with the top 20 customer deposits representing 29 per cent of the total.” the report stated.
Fitch Ratings also views ENG’s liquidity management as prudent with contingency plans in place. Local currency liquidity is underpinned by a high share of liquid assets (cash, interbank placements and sovereign securities), representing more than 50 per cent of total assets at end-9M20. ENG’s foreign currency funding benefits from sizeable interbank deposits, which represented about 15 per cent of total funding at end-9M20.
More than half of these deposits (about USD400 million) came from ETI’s affiliates at end-9M20. This reflects the group’s well-established inter-affiliate short-term deposit placement programme (IAP), amounting to $650 million at end-first half of 2020, which provides ENG with a significant competitive advantage compared with most other Nigerian banks, as ENG is able to rely on IAP funding when foreign currency liquidity conditions temporarily tighten in Nigeria.
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