Fitch Affirms Ecobank Transnational Inc. at ‘B-‘ with Stable Outlook
Fitch Ratings has affirmed Ecobank Transnational Incorporated’s (ETI) Long-Term Issuer Default Rating (IDR) at ‘B-‘ with a stable outlook. Ecobank issuer ratings are driven by its standalone creditworthiness, as expressed by its viability rating of ‘b-‘, Fitch said in its rating note released on Monday.
As a bank holding company, ETI’s viability rating is notched down once from the group VR of ‘b’ due to very high common equity double leverage. The group viability takes into consideration a leading pan-African franchise, strong revenue and geographical diversification, acceptable asset quality, healthy operating profitability, and a reasonable funding and liquidity profile with manageable wholesale debt repayments.
These considerations are balanced against the group’s heightened exposure to foreign-exchange (FX) risk, modest capital buffers, and contagion risks associated with a potential Eurobond repayment acceleration at its Nigerian subsidiary.
Fitch said the Pan African lender’s operating conditions are negatively influenced by high sovereign debt sustainability risks across sub-Saharan Africa (SSA). Nigeria (B-/Positive) and Ghana (RD), which are two of the group’s largest, have both been downgraded in recent years, with Ghana defaulting on local- and foreign-currency (FC) debt in 1Q23.
Geographical diversification mitigates sovereign risks, including high exposure to sovereigns rated ‘B-‘ and below. The group had banking subsidiaries spanning 33 sub-Saharan Africa (SSA) countries and assets of USD26.6 billion at end-3Q24, making it one of the largest banking groups on the continent outside of South Africa.
Ecobank’s strong revenue diversification is supported by a broad geographical footprint and high non-interest income, which accounted for 44% of operating income at the end of third quarter of 2024. Fitch said ETI is exposed to the depreciation of SSA currencies through its equity investments in subsidiaries because its reporting currency is US dollars.
According to the rating note, the depreciation of SSA currencies led to large FC translation losses through other comprehensive income in 2023 and 9M24, which significantly exceeded net income, resulting in a combined comprehensive loss of USD 265 million during the period.
The impact of FC translation losses on capital ratios is mitigated by risk-weighted assets (RWAs) reducing in dollar terms.
ETI’s impaired loans ratio increased to 6.6% at the end of 3Q24 from 5.4% in 2023. Specific loan loss allowance coverage of impaired loans was 60% at the end of 3Q24. “Our asset quality assessment considers exposure to sovereign debt sustainability risks through large holdings of sovereign fixed-income securities.”.
The group’s operating profit improved to 4.9% of risk-weighted assets in 9M24 from 4.2% in 2023, reflecting lower impairment charges and a wider net interest margin benefiting from higher interest rates. Fitch expects operating returns on RWAs to remain healthy in 2025.
ETI’s estimated common equity Tier 1 (CET1) ratio declined to 9.7% at the end of 3Q24 from 10.4% due to large foreign currency translation losses resulting from the Nigerian naira and Ghanaian cedi depreciation.
The CET1 ratio has only a modest buffer over the regulatory minimum requirement (8.5%), but Fitch expects this to strengthen in the near term. Fitch said ETI’s funding profile benefits from a high percentage of current and savings accounts and low depositor concentration.
ETI’s USD 400 million senior unsecured Eurobond issuance in October 2024 has reduced refinancing risks associated with the large amount of debt maturing in 2025.
Contagion funding risks for the group could arise if its Nigerian subsidiary faces acceleration on its Eurobond maturing February 2026 due to failure to restore capital compliance by end-3Q25. #Fitch Affirms Ecobank Transnational Inc. at ‘B-‘ with Stable Outlook Eterna Plc. Shrinks by 10% as Investors Sentiments Dive
