Moody’s Investors Service, an international rating agency, has downgraded nine Nigerian banks following its recent review of Nigeria’s overall rating. The banks affected by this downgrade include Access Bank Plc, Zenith Bank Plc, First Bank of Nigeria Limited, United Bank for Africa Plc, Guaranty Trust Bank Limited, Union Bank of Nigeria Plc, Fidelity Bank Plc, First City Monument Bank Limited, and Sterling Bank Plc. In a statement issued on Tuesday, Moody’s announced that it has lowered the long-term deposit ratings, issuer ratings, and senior unsecured debt ratings (where applicable) for all nine banks from B3 to Caa1.
The agency also changed the outlook for these ratings to stable. This decision comes in the wake of Moody’s downgrade of the Government of Nigeria’s long-term issuer rating to Caa1 from B3 on January 27, 2023, along with a change in the outlook to stable. The downgrade of the banks’ long-term ratings is attributed to two main factors: the deteriorating operating environment, which is reflected in Moody’s adjustment of Nigeria’s Macro Profile from “very weak+” to “Very Weak,” and the interconnectedness between the weakened creditworthiness of the sovereign and the banks’ balance sheets. This connection is significant due to the banks’ substantial holdings of sovereign debt securities.
Moody’s further elaborated that the revised Macro Profile for Nigeria indicates expectations of continued challenges in 2023, including depressed and uncertain oil production, capital outflows driven by a flight to quality, and the government’s limited access to external funding. The statement highlighted that rated Nigerian banks have considerable direct and indirect exposure to the Nigerian government, with a significant portion of their assets located within the country. As of June 2022, sovereign debt holdings accounted for 28% of their aggregate total assets.
The agency noted that the banks’ credit profiles are closely linked to the sovereign’s rating, which was downgraded on January 27, 2023, due to expectations of ongoing deterioration in the government’s fiscal and debt position. The Nigerian government faces extensive fiscal pressures, while its capacity to respond is hampered by long-standing institutional weaknesses and social challenges. Moody’s indicated that the stable outlooks for the long-term deposit, issuer, and senior unsecured debt ratings of the Nigerian banks align with the stable outlook of the government’s rating.
Additionally, the stable outlook for the sovereign rating suggests that while a new administration could potentially revitalize reform efforts following the general election scheduled for February 25, 2023, the implementation of such reforms is likely to be protracted due to significant social and institutional constraints. The government has long aimed to increase non-oil revenue and phase out costly oil subsidies, but achieving these objectives requires reforms that are institutionally, socially, and politically challenging. Meanwhile, funding conditions are expected to remain tight.
Comments are closed for this story.