Moody's Says Nigeria's Five Biggest Banks Share Common Credit Challenges Ahead

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* Moody’s – banks have all been affected by the weakening domestic operating environment following the prolonged period of lower oil and gas prices

* Moody’s – more challenging environment, with Moody’s view of high likelihood of support from Nigerian government, largely explains narrow range of issuer ratings of banks

London, 10 October 2016 — While Nigeria’s five biggest banks share common credit challenges related to the slowdown in Nigeria’s oil and gas dependent economy, their ability to withstand weak economic growth and volatile monetary conditions varies, Moody’s Investors Service said in a report published today.

The banks — Zenith Bank Plc (Zenith) (B1 stable, b1), Guaranty Trust Bank Plc (GTBank) (B1 stable, b1), Access Bank Plc (Access) (B1 stable, b2), United Bank for Africa Plc (UBA) (B1 stable, b2) and First Bank of Nigeria Limited (FBN) (B2 negative, b3) — have all been affected by the weakening domestic operating environment following the prolonged period of lower oil and gas prices.

The more challenging environment, coupled with Moody’s view of the high likelihood of support from the Nigerian government (B1, stable), largely explains the narrow range of issuer ratings of the five banks.

“However, despite shared credit challenges, there are differences among the banks in terms of their respective abilities to withstand weak economic growth and volatile monetary conditions, which are reflected in their differing baseline credit assessments (BCAs) that range from b1 to b3,” said Akin Majekodunmi, a Moody’s Vice President — Senior Analyst and co-author of the report. “Overall, Moody’s views Zenith and GTBank as best placed to cope, followed by Access and UBA, and then FBN.”

The publication of the peer comparison report follows Moody’s announcement on 15 September that the ratings agency has assigned first-time ratings to Zenith, GTBank, UBA and FBN, which account for approximately 48% of Nigeria’s banking assets.

Looking across the whole of the Nigerian banking sector, Moody’s expects non-performing loans (NPLs) to increase to around 12% over the next 12 months, compared to the 5% as of December 2015 recorded in central bank data. The forecast rise in NPLs stems from lower oil prices, a weakening naira, slower GDP growth and rising inflation.

Likewise, the agency expects foreign currency deposits, which have fallen around 30% since the start of 2015, to stabilise over the next 12 to 18 months as the impact of lower oil prices and the central bank’s adoption of a Treasury Single Account fades.

Moody’s expects loss-absorbing capital buffers to hold steady on account of muted loan growth of around 5-10% over the next 12 to 18 months. However, as a result of this weak loan growth, net interest income and fee and commission income will remain depressed.

On the upside, Nigeria’s economic potential remains strong and continues to attract investment. Depositor confidence and local currency buffers at the banks also remain robust.

The report, “Zenith, GTBank, Access, UBA and FBN — Peer Comparison of First Tier Nigerian Banks — Challenging Operating Conditions Ahead”, is available on www.moodys.com. Moody’s subscribers can access this report using the link at the end of this press release. The research is an update to the markets and does not constitute a rating action.

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