Moody's Investors Service has downgraded all nine of Nigeria's banks. This comes as a result of Moody's Investors Service last week lowering Nigeria's rating.
First Bank of Nigeria Limited, United Bank for Africa Plc, Guaranty Trust Bank Limited, Union Bank of Nigeria Plc, Fidelity Bank Plc, FCMB (First City Monument Bank) Limited, and Sterling Bank Plc are among the institutions involved. Access Bank Plc, Zenith Bank Plc, and First Bank of Nigeria Limited are also parties.
The international rating agency stated in a statement that it cut the long-term deposit ratings, issuer ratings, and senior unsecured debt ratings (where applicable) for all nine lenders from B3 to Caa1 on Tuesday.
Additionally, Moody's altered the outlook from negative to stable for the nine Nigerian banks with rated long-term deposit, issuer, and senior unsecured debt ratings.
Moody’s said in a statement, “Today’s rating actions follow Moody’s downgrade of the Government of Nigeria’s long-term issuer rating on January 27, 2023, from B3 to Caa1 and change in the outlook to stable.”
It said that the long-term ratings of nine Nigerian banks were lowered because of two things: the weakening operating environment, which was captured by Moody’s lowering of its Macro Profile for Nigeria to “Very Weak” from “Very weak+”, and the interlinkages between the sovereign’s weakened creditworthiness (shown by the downgrade of the sovereign rating to Caa1 from B3) and the banks’ balance sheets, given that the banks hold a lot of sovereign debt.
It said that the revised macro Profile for Nigeria shows that Moody’s expects low and uncertain oil production, capital outflows due to flight to quality, and the government’s limited access to external funding to continue to hurt Nigeria’s external position in 2023.
The revised Macro Profile also shows the risks that a lack of foreign currency in the country poses to Nigerian banks’ liquidity, capitalization, and asset quality.
“As of June 2022, sovereign debt holdings made up 28% of rated Nigerian banks’ total assets,” the report said. This means that rated Nigerian banks have a lot of direct and indirect ties to the Nigerian government. This is because many of their assets are in Nigeria, and they own a lot of sovereign debt.
“Government exposure links the banks’ credit profiles with the sovereign’s, whose rating was downgraded on January 27 2023, to reflect Moody’s expectation that the government’s fiscal and debt position will continue to deteriorate.”
The rating agency said that the government is under a lot of financial pressure, but its ability to respond is limited by Nigeria’s long-term institutional and social problems.
Moody’s said that the stable outlooks for the long-term deposit, issuer and senior unsecured debt ratings (where applicable) of Nigerian banks align with the stable outlook for Nigeria’s government rating.
It also said that the stable outlook on the sovereign rating reflects that “while a new administration could reinvigorate the reform impetus in Nigeria after the general elections planned for February 25 2023 and thereby support fiscal consolidation, implementation will likely remain lengthy amid marked social and institutional constraints”.
“Indeed, the government has long-held the aim of raising non-oil revenue and phasing out the costly oil subsidy, but these objectives necessitate reforms that are institutionally, socially and politically challenging to carry through. Meanwhile, funding conditions are likely to remain tight.”