International rating agency downgrades nine Nigerian banks

An international rating agency, Moody’s Investors Service, has downgraded nine Nigerian banks following the downgrade of Nigeria’s rating last week.

The downgraded banks are: Access Bank Plc, Zenith Bank Plc, First Bank of Nigeria Limited, United Bank for Africa Plc, Guaranty Trust Bank Limited, Union Bank of Nigeria plc, Fidelity Bank Plc, First City Monument Bank Limited and Sterling Bank Plc.

Moody’s, an international credit rating agency, downgraded to Caa1 from B3 long-term deposit ratings, issuer ratings and senior unsecured debt ratings (if applicable), all nine lenders, it said in a statement Tuesday, according to a report by Daily confidence.

The statement added that Moody’s also changed its outlook to stable for the ratings of long-term deposits, issuers and senior unsecured debt ratings (if any) of the nine rated Nigerian banks.

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

It added that the downgrade of the affected banks’ long-term ratings reflects a combination of two factors: the weakening business environment, as evidenced by Moody’s downgrading of its macro profile for Nigeria from “very weak” to “very weak”; and the interlinkages between the government’s weakened creditworthiness (as evidenced by the downgrade of the government’s rating from B3 to Caa1) and banks’ balance sheets, given banks’ significant holdings of sovereign debt, according to Daily confidence.

The statement went on to say that the revised macro profile for Nigeria reflected the rating agency’s expectation that low and uncertain oil production, capital outflows amid a flight to quality and the government’s limited access to external financing were likely to continue to weigh on external finance in 2023. position of Nigeria.

“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% of their total total assets as of June 2022.

“Government exposure links the banks’ credit profiles to that of the state, 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,” it said. .

“The government is under significant fiscal pressure, while its ability to respond is limited by Nigeria’s long-standing institutional weaknesses and social challenges,” Moody’s added.

The rating agency said the stable outlook for Nigerian banks’ long-term deposits, issuers and senior unsecured debt ratings (if any) was in line with the stable outlook for the Nigerian government rating.

It further stated that the stable outlook on the sovereign rating reflects the fact that, “while a new government could reinvigorate the reform momentum in Nigeria following the general election scheduled for 25 February 2023, supporting fiscal consolidation, the implementation of long-lived amid clear social and institutional constraints.

“Indeed, the government has long sought to increase non-oil revenues and phase out the costly oil subsidy, but these goals require reforms that are institutionally, socially and politically challenging to implement. Meanwhile, financing conditions are likely to remain tight.”