S&P Reviews Credit Ratings of First, Zenith and GTBank

International ratings agency  Standard & Poor’s have reviewed the ratings for three top-tier Nigerian banks.First Bank, Zenith Bank and GTBank have had their outlook ratings upgraded from stable to positive.

The ratings agency has also confirmed the long and short-term counterparty credit ratings on all three banks at ‘B+/B’.

The credit ratings agency has also raised its Nigeria national scale ratings on all three banks to ‘ngA+/ngA-1’ from ‘ngA/ngA-1′, as the agency cited “Nigeria’s positive economic prospects and their expected effect on the banks’ financial performances.”

According to the agency’s statement, “The positive outlooks on the three banks largely reflect the banks’ stand-alone credit profiles (SACPs) and the outlook on the sovereign, and indicate at least a one-in-three likelihood of the banks being upgraded if the government’s reform initiatives progress and help support economic growth.”

The statement also read, “Potential upgrades are conditional upon the maintenance of the banks’ SACPs at least at ‘bb-‘, with no material weakening of their financial performance over the short-to-medium term.”

FIRST BANK OF NIGERIA

The positive outlook on FBN largely reflects that on Nigeria. In our view, if Nigeria’s reform initiatives support positive economic growth, build stronger buffers against the country’s dependence on petroleum revenues, and reduce pressure on the exchange rate, then these factors may lead us to raise the sovereign rating and result in a more favorable operating environment for the bank. We believe that the bank’s cost of risk and profitability will likely improve as general economic activity picks up, loan growth continues, and the bank’s focus on bad debt recovery increases. Any positive ratings momentum would require a similar move in the sovereign ratings, alongside maintaining the bank’s SACP at least at ‘bb-‘. The SACP could come under pressure if the bank’s risk position deteriorates via asset quality deterioration, high cost of risk, risk-asset accumulation, or increasing concentrations. Furthermore, the SACP would also be under pressure if capitalization were to decrease with a risk-adjusted capital (RAC) ratio before adjustments moving below 5%. We would revise the outlook to stable if the outlook on Nigeria were revised to stable.

ZENITH BANK

The positive outlook on Zenith largely reflects that on Nigeria. In our view, if Nigeria’s reform initiatives support positive economic growth, build stronger buffers against the country’s dependence on petroleum revenues, and reduce pressure on the exchange rate then these factors may also lead us to raise the sovereign rating and result in a more favorable operating environment for the bank. We believe that the bank’s cost of risk and profitability will likely improve as general economic activity picks up and cautious loan growth continues. Any positive ratings momentum would require a similar movement in the sovereign ratings, alongside maintaining the bank’s current SACP at least at ‘bb-‘. A negative rating action, although unexpected in the medium term, could result from a significant rise in the bank’s risk profile, including a sharp deterioration in asset quality, which would result in a decline in our risk position assessment. We would revise the outlook to stable if the outlook on Nigeria were revised to stable.

GUARANTY TRUST BANK

The positive outlook on GTB largely reflects that on Nigeria. In our view, if Nigeria’s reform initiatives support positive economic growth, build stronger buffers against the country’s dependence on petroleum revenues, and reduce pressure on the exchange rate then these factors may also lead to an upgrade of the sovereign rating and result in a more favorable operating environment for the bank. We believe that the bank’s cost of risk and profitability will likely improve as general economic activity improves and prudent loan growth continues. Any positive ratings momentum would require a similar move in the sovereign ratings, alongside maintaining the bank’s current SACP at least at ‘bb-‘. A negative rating action, although unexpected in the medium term, would follow a decline in GTB’s financial profile, including a weakening of its capitalization such that the RAC ratio before diversification fell below 7%. We would revise the outlook to stable if the outlook on Nigeria were revised to stable.

Credit ratings for Access, FCMB were left unchanged.

” The ratings on the other Nigerian banks that we currently rate, Access Bank (B+/Negative/B) and First City Monument Bank (B+/Watch Neg/B), are unaffected by the sovereign outlook revision and today’s rating actions.”

UBA is not rated by Standard & poor’s but Global Credit Ratings (GCR) of South Africa and Fitch. The practice is for banks to hire ratings agencies to rate their credit worthiness so their bonds in issuance can be attractive to the discerning international investor.