GCR Affirms Union Bank of Nigeria Issuer Ratings, Outlook Evolving
GCR Ratings has affirmed Union Bank of Nigeria Plc’s (UBN) national scale long and short-term issuer ratings of BBB-(NG) and A3(NG), respectively, with the outlook maintained as evolving.
The evolving outlook, according to GCR, reflects the potential changes in UBN’s business and financial profile stemming from the planned consolidation with Titan Trust Bank (TTB), the imminent capital injection and the expected phase-out of the regulatory forbearance, which the bank significantly benefits from.
The rating also balances the bank’s weak capitalisation and risk profile against a stable funding structure, adequate liquidity and good competitive position. The bank’s capitalisation remains a major negative factor due to its weak capital adequacy ratio, which has been in breach of the regulatory minimum of 10% for the last three years.
Similarly, the GCR core capital ratio remains weak at 9.9% as of 30 June 2025 and fits within the low band of rating’s agency’s assessment.
Looking ahead, ratings analysts said the bank’s ongoing capital raising initiatives to meet the new regulatory capital requirements for its current licence should support its capitalisation assessment within the next 12 months, barring any material adverse impact from the expiration of regulatory forbearance.
UBN’s risk profile is a ratings weakness, reflecting the significant concentration risks by obligor, stage 2 loan classification, foreign currency, and sectoral concentration, GCR said.
Specifically, the twenty largest obligors accounted for 79.2% of gross loans as of 30 June 2025 from 74.9%in 2024 with four names currently in breach of the single obligor limit (SOL) of 20% of shareholders’ funds.
Ratings analysts said the subsisting SOL breach could be remedied by imminent capital injection. Foreign currency (FCY) loans to gross loans also remain high at 60.6% in June 2025 from 60.2% in 2024; the bulk of which represents restructured stage 2 loans largely to the oil and gas sector.
As such, the stage 2 loans constituted a significant 65.6%, the bulk of which currently enjoys regulatory forbearance.
GCR ratings analysts said the asset quality metrics could weaken due to the quality of the loan book and the potential adverse impact of the expiration of regulatory forbearance on the bank’s risk profile.
UBN’s competitive position is a key rating strength, GCR said, supported by its long operating history and good domestic brand franchise. As of 30 June 2025, the bank reported a balance sheet size of NGN4.1 trillion (USD2.8 billion), representing approximately 2.8% of the Nigerian banking industry’s total assets.
Operating revenue is stable, with net-interest income and non-interest income contributing 84.7% and 15.3% to operating revenues respectively in June 2025.
GCH stated that UBN’s increased value proposition through digitalisation, planned capital injection and the recent regulatory approval for business combination with TTB could support earnings generation capacity and its competitiveness over the next 12-18 months.
“We assessed funding and liquidity as a positive rating factor, underpinned by UBN’s stable funding structure and sufficiently liquid balance sheet. The bank is largely funded by customer deposits, which constituted 94.9% of the funding base as of 30 June 2025 as against 85.8% in 2024.
As of 30 June 2025, customer deposits declined by 4% to NGN2.9 trillion (USD2.0 billion), reflecting the bank’s deliberate reduction in expensive term deposits to lower funding costs.
As at the same date, current and savings account (CASA) deposits accounted for 80.8% of customer deposits, down from 81.2% in 2024 contributing to a lower cost of funds of 7.5% relative to 9.4% in December 2024.
Top twenty depositor account for 26.9% as of June 2025, down from 30.9% FY2024, reflecting relatively diversified deposit book. Liquidity remains good, with liquid assets covering wholesale fundings and customer deposits by 8.4x and 44.7% respectively in June 2025.
The Evolving Outlook reflects possible changes to UBN’s business and financial profile over the next 12 to 18 months after consolidation with TTB, regulatory driven recapitalisation, and potential discontinuation of regulatory forbearance. CBN Spends $7.5 billion to Defend Nigerian Naira in 2025
