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Fitch Ratings has upgraded that of United Bank for Africa Plc (UBA) Long-term default issuer rating (IDR) to "B +" of "B". The outlook is stable. The UBA viability index (VR) has been upgraded from "b" to "b +". A complete list of ranking actions can be found at the end of this ranking action commentary.
The upgrades reflect an improvement in the bank's performance indicators and the financing and liquidity profile, which we consider sustainable. UBA's strong capital ratios, its increasingly diversified funding base, and its well-managed liquidity mean that its risk profile is now more aligned with those of Zenith Bank and Guaranty Trust Bank, both rated " B + ".
MAIN DRIVERS
IDRS, VR, NATIONAL RATINGS AND SUPERIOR DEBTS
The UBA IDRs are based on its intrinsic solvency, as defined by its RV. Like all Nigerian banks, UBA's RV is constrained by the operational environment in Nigeria (B + / Stable), where the fragile economic recovery is limiting banks' growth prospects and the quality of their assets. The VR reflects UBA's position as one of Nigeria's largest banks, as well as its reliable financial parameters and reasonable capital reserves. In Nigeria, it controls a global market share of about 10% and its well established franchise is a major asset.
Operating conditions remain difficult for banks. Despite rising oil prices over the course of the second half of the 18-year period supporting economic growth, demand for credit is weak and banks are under pressure on margins and capital.
UBA is also Nigeria's most international bank, operating in 20 other countries in sub-Saharan Africa. Its purpose is to function as a pan-African commercial bank. Our assessment is that geographic diversification is a positive credit because it offers growth opportunities and can reduce exposure to Nigeria's cyclical economic growth trends, but also adds to the complexity, especially given the risk environment. high associated with many countries in sub-Saharan Africa. It also limits the virtual reality.
International subsidiaries contributed 40% of the group's result in the first half of 18, but Nigerian assets dominate the group, accounting for around 70% of consolidated assets.
Business loans dominate the loan portfolio and borrower concentrations are high, as in Nigeria. This exposes the group to potentially high losses in the event of a failure. The top 20 loans represent about 42% of the total loans at the end of 1H18. Exposure to the oil sector accounted for 20% of total loans, which is below the industry average (30%). Personal loans, which account for 7% of total loans at the end of the first half of 2008, are growing steadily. Impaired loans accounted for 7.2% of gross loans at the end of the first half of year 18, which is slightly higher than the average of 5% recorded by its closest peers. The coverage of loan losses at around 95% is reasonable, but not in our opinion.
The UBA financing profile in local currency is a rating strength. Its loan-to-deposit ratio (57% at the end of 1H18) is low compared to its peers (69%). The deposit base is well diversified by single client and retail deposits represent approximately one-third of customer deposits, which is above the average of rated peers. UBA's digital offering continues to attract deposit entries. The local currency liquidity ratios are comfortable and the issuance of senior medium-term bonds of $ 500 million on the international capital markets in June 2017 eased the pressure on the group's overall liquidity position in currencies.
The Fitch Core Capital / UBA weighted risk ratio (24.9% at the end of the first half of 18 years) is among the highest in the industry. However, capital and leverage are not considered to be outstanding compared to Guaranty Trust Bank and Zenith Bank, as the weighted risk density of UBA is lower and the concentrations at UBA can be high, especially in subsidiaries. This could lead to unexpected losses.
UBA's results and profitability trends show signs of improvement and have been stable for many years, which we believe is positive. We expect performance trends to continue to strengthen, driven by growing contributions from international subsidiaries and increased stability in Nigeria.
UBA's national ratings reflect its creditworthiness relative to Nigeria's best credit and its peers operating in Nigeria.
SUPPORT NOTE AND FLOOR SUPPORT NOTE
Fitch believes that it is impossible to count on the sovereign support of Nigerian banks, given Nigeria's limited capacity to provide support, particularly for the CF. In addition, there is no clear message of support from the authorities for their willingness to support the banking system. As a result, the floor of the support rating of all Nigerian banks is "No floor" and all support ratings are "5". This reflects our view that senior creditors can not count on complete and timely extraordinary support from the Nigerian sovereign if one of the banks becomes unsustainable.
SUPERIOR DEBTS
The senior debt issued by UBA is rated at the same level as the long-term IDR of the bank because, in our opinion, the probability of default of these notes is the probability of default of the bank. When a bank has a long-term IDR equal to or less than "B +", we generally assign a recovery index to the issue. The RR assigned to these ratings is "RR4", which indicates the average recovery prospects.
SENSITIVITY OF RATING
IDRS, VR AND NATIONAL CLASSIFICATIONS
The UBA RV, and hence its IDR, will not be upgraded until the operating environment is improved in Nigeria. However, this is unlikely in the short term, given the stable outlook on the sovereign's rating. Asset quality and capital weakness, which are not expected in the foreseeable future, would likely have a negative impact on ratings. A change in the risk profile of UBA relative to its peers would result in a change in its national ratings.]
SUPPORT NOTE AND FLOOR SUPPORT NOTE
The RS and the SRF are sensitive to any change in assumptions regarding the propensity or ability of the sovereign to provide timely support to the bank. Given Nigeria's sovereign ratings, this is not our basic case.
SUPERIOR DEBTS
Senior debt is sensitive to a long-term change in IDR of UBA.
The rating actions are as follows:
United Bank for Africa Plc
Long-term IDR upgraded from "B" to "B +"; Outlook Stable
Short-term IDR confirmed in & # 39; B & # 39;
Past viability rating of & bt; at & b + & # 39;
Long-term national rating changed from A + (nga) to "AA- (nga)"
National short-term ranking changed to "F1 + (nga)" from "F1 (nga)"
Support note confirmed at & # 39; 5 & # 39;
Support Rating Floor Confirmed at 'No Floor'
Senior Non Long-Term Debt Brought to "B" / "RR4" of "B" / "RR4"
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