Ecobank Nigeria is likely to see a small increase in profitability, according to Fitch Ratings, a well-known rating firm.
The rating organization made its recommendation based on the financial institution’s declining asset-quality challenges and decreased loan impairment costs (LICs).
In a statement to announce affirming the lender’s Long-Term Issuer Default Rating (IDR) at ‘B-‘ with a stable outlook, Fitch said Ecobank’s loans have declined in recent years and it does not see a high risk of the largest Stage 2 loans, which are concentrated within the oil and gas sector, of becoming impaired.
It noted that its asset-quality assessment is positively influenced by a substantial amount of non-loan assets, largely comprising government securities and cash reserves at the Central Bank of Nigeria (CBN).
Also, the rating company simultaneously upgraded the bank’s National Short-Term Rating to ‘F2(nga)’ from ‘F3(nga)’, noting that the IDRs of Ecobank Nigeria are driven by its standalone creditworthiness, as expressed by its Viability Rating (VR) of ‘b-‘.
It stated that the bank has a moderate market share of Nigeria’s banking-sector assets but its franchise benefits from being a subsidiary of Ecobank Transnational Incorporated, a large pan-African banking group with operations spanning 33 countries across sub-Saharan Africa (SSA).
In the statement, Fitch said it observed that Ecobank’s total capital adequacy ratio (CAR) of 19.6 per cent at the end of the first quarter of 2021 maintains a comfortable buffer above the 10 per cent regulatory requirement for a bank with a national licence and the bank’s tangible leverage ratio of 10.7 per cent at the end of the first quarter of 2021 which compares favourably with that of peers.
Impaired loans net of specific loan loss allowances represented a significant 46 per cent of Fitch Core Capital at end of the first quarter of last year but risks to capital are mitigated by strong collateral coverage and recovery expectations of the two large upstream impaired loans.
The bank’s low gross loans/customer deposits ratio of 67 per cent at the end of 2021 largely reflects a small loan book.
“Large cash reserves at the CBN, net interbank placements and unpledged central-government securities represented 33 per cent of total assets and 50 per cent of customer deposits at the end the first quarter of 2021 providing healthy liquidity coverage.
“Our funding and liquidity assessment also considers the benefits of ordinary liquidity support from ETI,” the statement said.
Fitch’s view of support for Ecobank Nigeria considered the high propensity of ETI to provide support, given the former’s importance to the parent’s pan-African strategy as its largest subsidiary and it is operating in sub–Saharan Africa’s largest economy.
It also considers the material reputational damage to ETI that would accompany Ecobank’s default, the 100 per cent ownership, a high degree of management and operational integration and a record of capital support.
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