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Moody’s Places Long-Term Ratings of Nine Nigerian Banks on Review for Downgrade

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Moody’s Investors Service has placed on review for downgrade the long-term deposit ratings, as well as long-term issuer and senior unsecured debt ratings, where applicable, of the following nine Nigerian banks.

The banks are Access Bank, Zenith Bank, First Bank, United Bank for Africa Plc, Guaranty Trust Bank Limited, Union Bank of Nigeria, Fidelity Bank, First City Monument Bank and Sterling Bank Plc.

The credit rating agency said its decision to place the long-term ratings of the banks on review for downgrade reflects the risk of increasing foreign currency rationing that could compromise the banks’ operational ability to meet their foreign currency obligations, as well as the risk arising from a potential material depreciation in the country’s foreign exchange rate to the banks’ capitalisation and asset quality.

“Constraints on domestic oil production, capital outflows, and the increased cost of the country’s imported refined petroleum products, coupled with US dollar strengthening, have together weighed on the availability of foreign currency liquidity in the country despite higher oil prices and material discrepancies between official and parallel market exchange rates persist in the country,” it said in a statement.

“Nigeria’s foreign exchange reserves have declined to $38 billion as of September 2022 from $40 billion as of January 2022 despite higher oil prices, and we understand that the central bank, which is the main provider of foreign exchange in the country, has consequently scaled down and become increasingly selective with its foreign currency allocations.”

The review for downgrade on the long-term ratings of the banks also captures the risk that a potential material depreciation in the country’s foreign exchange rate could pose to the banks’ capitalisation and asset quality.

On average, around 40 per cent of loans extended by Moody’s-rated Nigerian banks as of December 2021 were denominated in foreign currencies, predominantly dollars.

Some of these borrowers are vulnerable to a further depreciation of the naira because they do not earn foreign-currency income, and a weaker naira would harm their repayment capacity.

The banks’ relatively high level of dollarisation also constrains the central bank’s capacity to act as a lender of last resort in case of need, according to Moody’s.

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