4th July, 2023
Fitch Ratings has placed Ecobank Transnational Incorporated’s (ETI) and Ecobank Nigeria Limited’s (ENG) Viability Ratings (VRs) of ‘b-‘ and Long-Term Issuer Default Ratings (IDRs) of ‘B-‘ on Rating Watch Negative (RWN) following the sharp devaluation of the Nigerian naira.
According to Fitch, in a statement, the RWN reflects the risk of the entities breaching their respective minimum capital requirements due to the direct effect of the devaluation.
“For ENG it also reflects increased risks to capital from large foreign-currency (FC) problem loans (Stage 2 and Stage 3 under IFRS 9) that have been inflated by devaluation, which may necessitate greater prudential provisions and exert further pressure on the bank’s total capital adequacy ratio (CAR), in addition to broader loan quality risks stemming from the devaluation.
“As a bank holding company (BHC), for ETI the RWN also reflects the risk of a material increase in common equity double leverage as a direct effect of the devaluation, which could result in a widening of the notching between the group VR and that of the BHC, in addition to the risk of the effects of the devaluation potentially complicating its ability to refinance large upcoming BHC debt maturities,” it said.
Fitch has also placed ENG’s Shareholder Support Rating (SSR) of ‘ccc+’ on RWN, reflecting the potential for ETI’s ability to provide shareholder support, if required, to be weakened following the devaluation, adding that ETI’s Government Support Rating is unaffected.
Fitch expects to resolve the RWN within the next six months when exchange-rate volatility may recede, the impact on regulatory capital ratios and common equity double leverage is clear, and the scale of the second-order economic effects of the devaluation on loan quality becomes evident.