Fitch Places Ecobank Nigeria on Rating Watch Negative Amid Capital Adequacy


Fitch Ratings has upheld the Issuer Default Ratings (IDRs), Viability Rating (VR), and National Ratings of Ecobank Nigeria Limited (ENG) on Rating Watch Negative (RWN). ENG’s Shareholder Support Rating (SSR) was affirmed at ‘ccc+’ and removed from RWN. The Rating Watch Negative reflects Fitch’s concern about ENG’s ability to maintain compliance with the 10% minimum regulatory capital adequacy ratio (CAR) following the naira devaluation, with risks including business profile and foreign-currency liquidity. Notably, ENG’s recent High Court judgment appeal for damages of NGN72.2 billion has been excluded from the RWN due to its expected long-term resolution.

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Key drivers for ENG’s IDRs include its challenging operating environment, high credit concentrations, legal risks, asset-quality issues, weak profitability, and modest capitalization. The Nigerian banking sector faces challenges such as the impact of recent reforms by President Bola Tinubu, contributing to inflationary pressures and potential social unrest. ENG, a subsidiary of Ecobank Transnational Incorporated (ETI), exhibits high sovereign exposure and notable concentration in oil and gas lending.

ENG’s impaired loans ratio increased to 9% at end-3Q23, and its weak core profitability, evidenced by a narrow net interest margin, poses challenges. Thin regulatory capital buffers, high concentration in foreign-currency lending, and potential acceleration of USD300 million Eurobond payments further heighten risks.

Negative rating actions for ENG may result from a sovereign downgrade affecting capitalization and FC liquidity or if the bank breaches its minimum CAR requirement. Positive rating actions hinge on sustained CAR compliance and improved creditworthiness relative to other Nigerian issuers.

Fitch maintains that the Senior unsecured debt issued through EBN Finance Company B.V. is rated at the same level as ENG’s Long-Term IDR, reflecting comparable default likelihood. The Recovery Rating of ‘RR4’ suggests average recovery prospects.

The SSR of ‘ccc+’ indicates ETI’s high propensity to support ENG, driven by its significance to the parent’s pan-African strategy and its position as the largest subsidiary. However, ETI’s constrained ability to provide support due to ENG’s size is acknowledged.

ENG’s senior unsecured debt ratings are linked to changes in its Long-Term IDRs. Any alteration in ETI’s ability or propensity to provide support would impact the SSR. ESG considerations have minimal credit impact, with a score of ‘3’ indicating neutrality or minimal impact on ENG’s credit profile.

This analysis is based on information sources outlined in the Applicable Criteria, and ESG Relevance Scores are observations rather than inputs in the rating decision process.

Gbenga Samson
Gbenga Samson
Samson Gbenga Salau [Editorial Board Adviser] Gbenga Samuel Salau is a professional journalist with over 17 years experience in journalism, he is a graduate of Communication and Language Arts, University of Ibadan. On completion of his youth service, he joined The Guardian as a freelance journalist and was later absorbed as a staff. While in the University, he was a campus journalist reporting for the Independence Hall and Faculty of Arts Press Clubs. As a campus journalist, he won the following awards; Independence Hall Press Best News writer; University of Ibadan Union of Campus Journalists’ Best News Reporter/Writer; First Runner-up, Reuben Abati Award for Investigative Journalism; Association of Faculty of Arts Students’ Press Best Reporter; University of Ibadan Union of Campus Journalists’ Best Political Writer; Winner, Reuben Abati Award for Investigative Journalism, and University of Ibadan Union of Campus Journalists’ Best Interviewer. He served the Association of Communication and Language Arts Students, as the Public Relation Officer, the same year he was appointed the News Editor of the Association of Faculty of Arts Students Press. The following session, he was made the General Editor, and a member of the 13-man University of Ibadan Students’ Union Transition Committee. As a reporter in The Guardian, in 2014, he won the Promasidor Quill Award Best Report on Nutrition and DAME Business Reporting category. In the 2015 edition of the Promasidor Quill Award, he won the best Report on Nutrition and Brand Advocate Categories, while in 2016, he won the NMMA Print Journalist of the Year, first runner-up Golden Pen Reporter of the Year and SERAs CSR Awards. Gbenga Salau loves traveling, reading, and listening to songs with good lyrics no matter the genre.

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