The Federal Government expressed its shock on Thursday regarding the recent downgrade of nine Nigerian banks by Moody’s Investors Service. This downgrade followed the agency’s downward revision of Nigeria’s rating the previous week. The government stated that despite presenting evidence of its efforts to stabilize the economy, Moody’s report did not accurately reflect an understanding of the domestic economic situation. Zainab Ahmed, the Minister of Finance, Budget and National Planning, emphasized during the 65th session of the State House Ministerial Briefing at the Aso Rock Villa in Abuja that external rating agencies often lack a comprehensive grasp of the local environment.
The banks affected by Moody’s downgrade include Access Bank Plc, Fidelity Bank Plc, First City Monument Bank Limited, First Bank of Nigeria Limited, Guaranty Trust Bank Limited, Sterling Bank Plc, Union Bank of Nigeria Plc, United Bank for Africa Plc, and Zenith Bank Plc. Moody’s downgraded the long-term deposit ratings and issuer ratings of these banks from B3 to Caa1, along with their senior unsecured debt ratings where applicable. Additionally, the agency changed the outlook for these ratings to stable.
Moody’s provided several reasons for the downgrades, noting that the rated Nigerian banks have significant direct and indirect exposure to the Nigerian sovereign. A substantial portion of their assets is located within the country, with sovereign debt holdings accounting for 28 percent of their total assets as of June 2022. The agency linked the banks’ credit profiles to the sovereign’s rating, which was downgraded on January 27, 2023, due to expectations of a continued deterioration in the government’s fiscal and debt position. Following this downgrade, Nigeria’s government bonds experienced their fastest decline in three months, with the yield investors demand to hold Nigeria’s dollar debt rising by 49 basis points to 780.
While the Federal Government acknowledged the factors that influenced the downgrade, Minister Ahmed reiterated that the report was unexpected given the government’s ongoing efforts to stabilize the economy. She noted that Moody’s concerns included the potential for a relapse in oil production levels, despite recent restorations, and the high debt service to revenue ratio. Although Moody’s recognized Nigeria’s capacity to meet its debt obligations in the medium term, it flagged the significant portion of revenue consumed by debt service as a high risk. Furthermore, the agency inferred that Nigeria’s foreign exchange management remains problematic, as industries struggle to access the necessary foreign exchange for their operations.
Looking ahead, Ahmed expressed anticipation for the upcoming report from S&P Global, which is expected to be released on Friday. She pointed out that S&P’s assessment differs from Moody’s, indicating a more favorable outlook. The Minister explained that the government has been proactive in addressing the challenges highlighted by Moody’s and is hopeful for a better evaluation from S&P Global.
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