6 January 2012
Standard & Poor’s Ratings Services (S&P) Thursday revised its outlook on Guaranty Trust Bank Plc (GTBank), First Bank of Nigeria Plc and Zenith Bank Plc to ‘positive’ from ‘stable,’ even as it affirmed its ‘long’- and ‘short’ term counterparty credit ratings on all three banks at ‘B+/B’.
S & P had due to the Federal Government’s reform initiatives, revised the outlook on Nigeria to ‘positive’ from ‘stable’, and had affirmed its long- and short-term sovereign credit ratings on the economy at ‘B+/B,’ last week Thursday.
A statement posted on the international ratings agency’s website, hinged the decision to revise the outlook on the three commercial banks on the revision on the economy, even as it revealed that it has also raised its national scale ratings on the three banks to ‘ngA+/ngA-1’ from ‘ngA/ngA-1′, reflecting Nigeria’s positive economic prospects and their expected effect on the banks’ financial performances.
It explained: ” The positive outlook 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. 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.
It however pointed out that its ratings on other Nigerian banks under – Access Bank Plc (B+/Negative/B) and First City Monument Bank Plc (B+/Watch Neg/B), were unaffected by the sovereign outlook revision and its action on the aforementioned three banks. It said that raising of the country’s national scale long-term ratings was based on its expectations that improvement in the economic environment would have a positive effect on the banks’ financial performance, which would in turn, translate into lower cost of risk and continued focus on bad debt recoveries.
S&P said that under its criteria for banks – the Banking Industry Country Risk Assessment (BICRA), used in determining a bank’s anchor, the three financial institutions were above the sovereign credit ratings.
The ratings agency said that if Nigeria’s reform initiatives supported positive economic growth, build stronger buffers against the country’s dependence on petroleum revenues, and reduces pressure on the exchange rate, then it may lead to an upgrade of the country’s sovereign rating as well as more favourable operating environment for the banks.
Commenting on GTBank, S& P added: “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 per cent. We would revise the outlook to stable if the outlook on Nigeria were revised to stable.”
Commenting on First Bank, it said: “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 per cent. We would revise the outlook to stable if the outlook on Nigeria were revised to stable.”
Similarly, it forecast that Zenith Bank’s cost of risk and profitability would improve as general economic activity picks up and cautious loan growth continues.
“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,” it said further on Zenith Bank.
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