Fitch Ratings has affirmed the Long-Term Issuer Default Ratings (IDRs) of Guaranty Trust Holding Company Plc (GTCO) and its main operating subsidiary, Guaranty Trust Bank Limited (GTB), at ‘B-‘ with Positive Outlooks.
Thank you for reading this post, don't forget to subscribe!The rating agency also affirmed the issuers’ National Long-Term Ratings at ‘AA (nga)’ with Stable Outlooks.
According to Fitch, the IDRs reflect the standalone creditworthiness of GTCO and GTB, as expressed by their Viability Ratings (VRs).
These VRs are constrained by Nigeria’s Long-Term IDRs of ‘B-‘ due to the high sovereign exposure relative to capital and the concentration of their operations in Nigeria. The ‘b-‘ VRs are one notch below their ‘b’ implied VRs, reflecting the operating environment and sovereign rating constraint.
Fitch noted that GTCO and GTB’s National Long-Term Ratings are higher than those of other Nigerian domestic systemically important banks (D-SIBs) due to their stronger profitability and capitalisation.
Challenging Environment
Since taking office in May 2023, President Tinubu has implemented key reforms, including reducing the fuel subsidy and overhauling monetary policy by allowing the naira to devalue by over 65%.
Fitch considers these reforms positive for Nigeria’s creditworthiness but acknowledges the near-term macroeconomic challenges they pose for the banking sector.
Sizeable Domestic Franchise
GTCO is Nigeria’s fifth-largest banking group, accounting for 6% of banking system assets at the end of 2023. The company benefits from having the banking sector’s lowest cost of funding.
Revenue diversification is high, with non-interest income comprising 63% of operating income in the first quarter of 2024, up from 59% in 2023.
High Sovereign Exposure
GTCO’s single-obligor credit concentration is moderate, with the 20 largest loans representing 115% of Fitch Core Capital (FCC) at the end of 1Q24. The company’s oil and gas exposure was 42% of net loans at the end of 2023.
GTCO’s exposure to Nigerian sovereign securities and cash reserves at the Central Bank of Nigeria (CBN) is high relative to FCC, exceeding 200% at the end of 2023.
Sound Profitability Metrics
Fitch highlighted that GTCO is the most profitable of all Nigerian banks, with operating returns averaging 8.6% of risk-weighted assets (RWAs) over the past four years.
Profitability is supported by low cost of funding, high non-interest income, and typically low loan impairment charges (LICs).
In 2023, the bank’s profitability increased significantly, driven by large foreign-exchange (FX) revaluation gains from its net long foreign currency (FC) positions following the naira devaluation, and is expected to benefit from rising interest rates in 2024.
