Moody’s downgrades Nigerian banks over ‘weaker operating environment’

Four days after further downgrading Nigeria’s credit ratings into junk territory, Moody’s Investors Service downgraded the long-term deposit ratings, issuer ratings and senior unsecured debt ratings of all of its rated banks in the country.

The global credit rating agency said in a statement on Tuesday that it had downgraded the banks’ ratings to Caa1 from B3.

The affected lenders are Access Bank Plc, Zenith Bank Plc, 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. Anonymous society.

Moody’s said it has changed the outlook to stable on the long-term deposit ratings, issuer ratings and senior unsecured debt ratings of the nine rated Nigerian banks.

The agency had on Friday cut Nigeria’s credit ratings from B3 to Caa1, seven notches below investment grade.

Also Read: Moody’s Worst Rating Sends Nigerian Eurobonds Down

According to Moody’s, Caa-rated obligations are considered to be of low quality and are subject to very high credit risk.

“Moody’s downgrade of the long-term ratings of nine Nigerian banks reflects a combination of (a) a weakening operating environment, as reflected in Moody’s downgrade of its macro profile for Nigeria to ‘very weak’ from ‘very weak+’ ; and (b) the interrelationships between the sovereign’s weakened creditworthiness (as indicated by the sovereign’s downgrade to Caa1 from B3) and banks’ balance sheets, given banks’ significant holdings of sovereign debt securities,” it said. .

He said the revised macro profile for Nigeria reflected his expectation that depressed and uncertain oil production, capital outflows amid the flight to quality and restricted government access to external financing were likely to continue to weigh on the external position. of Nigeria in 2023.

“The revised macro profile also captures the risks that the country’s currency shortage poses to the liquidity, capitalization and asset quality of Nigerian banks,” Moody’s said.

It said the rated Nigerian banks have significant direct and indirect exposure to the Nigerian government, with a significant portion of their assets located in the country and government debt holdings representing 28 percent of their aggregate total assets as of June 2022. .

“The government exposure links the banks’ credit profiles to those of the sovereign, 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 government said. agency. “The government faces extensive fiscal pressure, while the ability to respond remains constrained by institutional weaknesses and Nigeria’s long-standing social challenges.”