Standard and Poors (S&P), a global rating agency has affirmed its ‘B-/B’ long- and short-term issuer credit ratings on Ecobank Nigeria, implying  the bank’s capacity to meet its current financial commitment on obligations despite the adverse business, financial, and economic conditions prevalent in the country.

 

 

The agency, however,  stated that further potential depreciation of the naira could undermine the bank’s regulatory capital adequacy ratio (CAR), given its thin capital buffers. It therefore revised the outlook to negative from stable and affirmed its ‘B-/B’ ratings on Ecobank Nigeria.

 

The Rating agency had, in its recent report, observed that banks in the country, including Ecobank Nigeria, were being negatively impacted by foreign exchange (FX) shortages and weakening naira. It added that FX scarcities will continue to weigh on key sectors of the economy through 2024, despite the Central Bank of Nigeria (CBN)’s efforts to clear the FX backlog.

 

“The high level of foreign currency loans — at 65 percent compared to a 55 percent estimate for the sector, following naira depreciation in June 2023–poses additional credit risks in Nigeria due to the scarcity of U.S. dollars.”

 

“Because of the weaker naira, we expect Ecobank Nigeria to adjust the level of collateral on its letters of credit. The bank increased its provisions 166 percent in third-quarter 2023 from third-quarter 2022 with a cost of risk ratio of 1.8 percent.”

 

“Although we expect the bank to meet its capital requirements, a potential sharp depreciation of the naira could undermine its regulatory capital adequacy ratio.

 

“While the naira trades closer to a managed-float rather than being a fully free-floating currency, the exchange rate is now significantly more in line with market demand — at about N850-N950 per $1 — and supply fundamentals, which remain weak.”

 

The agency said it understands that if the minimum CAR were breached, the bank would have 30 days to restore its capital buffer. If it was not restored, this would trigger acceleration of payments on the outstanding Eurobonds, amounting to $300 million, stressing that such an event could materially increase pressure on the Bank’s FX liquidity position.

 

According to the agency, ‘B-/B’ ratings on Ecobank Nigeria reflect its core status to the Ecobank group, and its integral role in its parent’s future strategy.

 

 

S&P further confirmed that it would revise the outlook on Ecobank Nigeria to stable over the next 12 months if the bank’s capitalisation improves, and its regulatory capital buffers increase.