Moody’s assessment shocking, says FG

The federal government said on Thursday it was shocked by the report from an international rating agency, Moody’s Investors Service, that downgraded nine Nigerian banks following the country’s rating downgrade last week.

It said despite presenting evidence of its efforts to stabilize the economy that Moody’s report did not reflect an understanding of the domestic economy.

“It came as a surprise to us because we presented all the work we have done to stabilize the economy. But these are external rating agencies that do not fully understand what is happening in our domestic environment,” Minister of Finance, Budget and National Planning, Zainab Ahmed, argued at the 65th session of the State House ministerial briefing hosted by the Presidential Communications Team at the Aso Rock Villa, Abuja.

In an earlier statement, Moody’s Investors Service downgraded nine Nigerian banks. The downgraded banks are Access Bank Plc, Fidelity Bank Plc, First City Monument Bank Limited, First Bank of Nigeria Limited, Guaranty Trust Bank Limited, Sterling Bank Plc., Union Bank of Nigeria Plc., United Bank for Africa Plc. and Zenith Bank Plc.

According to the statement, the rating agency also downgraded long-term deposit and issuer ratings, as well as senior unsecured debt ratings (if any), of all nine lenders to Caa1 from B3.

A report checked by The PUNCH also stated that Moody’s has changed its outlook to stable on the ratings of long-term deposits, issuer ratings and senior unsecured debt ratings (if any) of the nine rated Nigerian banks.

Giving reasons for the downgrades, Moody’s said: “Rated Nigerian banks have significant direct and indirect exposure to the Nigerian state, with a significant portion of their assets in the country and sovereign debt accounting for 28 percent of their total total assets as of June 2022.

“Government exposure links the banks’ credit profiles to that of the government, whose rating was downgraded on January 27, 2023, to reflect Moody’s expectation that the government’s fiscal and debt position will continue to deteriorate.”

“Today’s rating actions follow the January 27, 2023 Moody’s downgrade of the government of Nigeria’s long-term issuer rating from B3 to Caa1 and the outlook change to stable,” it added.

As a result, Nigeria’s government bonds suffered their fastest fall in three months on Monday.

Based on data from JPMorgan Chase & Co., the additional yield investors are demanding to hold Nigeria’s dollar debt instead of government bonds has risen 49 basis points to 780.

Before Moody’s downgrade, Nigeria’s bonds have outperformed other issuers in African and emerging markets for the past six months.

While the FG acknowledged the factors affecting the downgrade, Moody’s said

The Treasury Secretary said: “The downgrade of the Moody’s report came as a surprise to us as we presented all the work we have done to stabilize the economy.

“But these are external rating agencies that don’t fully understand what’s going on in our domestic environment.

“The reasons they gave are also very practical. They said that while oil production has recovered, there is still a chance, a greater risk, of a fall back to production levels.

“Second, they also said they are concerned that our debt service to revenue ratio is high. And while their estimate is that we’ve been able to pay off our debt in the medium term, they’ve confirmed that we’re able to pay off our debt, but it’s eating up too much of our revenue and they marked that as high risk .”

She said Moody’s concluded that Nigeria’s foreign exchange management remains problematic as the industries operating in the country cannot meet the foreign exchange requirements to meet business needs.

Ahmed said the FG is looking forward to the global S&P report to be released on Friday.

She explained: “So these are practical things. We explained to them what we are working on to address each of these three major challenges they reported.

“But at the same time, we are also in the process of being assessed by S&P Global. So yesterday S&P Global sent us a message about what they will be releasing; S&P’s rating is not the same as Moody’s rating.

“They have come up with a much better assessment to argue. They are global rating agencies, they have different views and different operations. S&P’s rating will be released tomorrow (Friday). It’s a lot better than the Moody’s.”