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Faltering sovereign credit rating hits Nigerian banks

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The sliding economic numbers of the country, which led to the downgrade of the sovereign rating by Fitch Ratings, have finally visited the banking industry with mixed fortunes.

Specifically, while Fitch downgraded major banks from various credit rating levels in its latest rankings of financial institutions’ ability to attract and repay debts, eight got positive affirmation and upward reviews.

The mixed fortunes for the banks are said to be fallouts of the downgrade of Nigeria’s sovereign ratings on 23 June 2016, a situation that bothers on the macroeconomic challenges of the country.

A half of the banking industry stocks lost values at the resumption of economic activities last Friday, with some remaining stagnant, while only four gained marginally.

Investors were apprehensive and priced-in the fears on the stocks of the affected banks, due to speculations on which bank is next after Skye Bank’s board intervention and alleged comments from a top regulatory source that two more banks have breached the prudential ratios.

Fitch Ratings has downgraded the two banks’ Long-Term Foreign-Currency Issuer Default Ratings (IDRs) to ‘B’ from ‘B+’, with outlooks stable.

Another one also got its entire holding structure downgraded on National Long-Term Rating to ‘BBB+(nga)’ from ‘A(nga)’.

Similarly, Fitch at the same time affirmed the IDRs of eight other Nigerian commercial banks and affirmed the Viability Ratings (VR) of all the banks.

The Outlook on the Long-Term Foreign Currency IDR of one of the banks, was revised upward to stable from negative due to continuing strong earnings and stronger-than-expected liquidity.

Fitch also revised the Support Rating Floors (SRFs) to ‘B’ from ‘B+’ for the systemically important banks, following the downgrade of Nigeria’s sovereign ratings.

The systemically important banks’ SRFs remain a notch below the sovereign rating, reflecting the sovereign’s weak foreign currency position.

Fitch believes that the willingness of the Nigerian authorities to support domestic banks continues to be high, as demonstrated in the past.

However, the state’s ability to provide support, particularly in foreign currency, is weaker due to falling oil prices eroding Nigeria’s foreign exchange reserves and foreign currency revenues.


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