Fitch Affirms Stanbic Bank Uganda at ‘B+’; Outlook Negative
Fitch Ratings has affirmed Stanbic Bank Uganda Limited’s (SBU) Long-Term Issuer Default Rating (IDR) at ‘B+’. It added that the rating outlook for the bank is negative.
The rating note said SBU’s IDRs reflect a limited probability of support, if required, from the bank’s ultimate parent, South Africa-based Standard Bank Group Limited, which has an indirect 80% shareholding.
The global rating firm also informed that the negative outlook reflects Uganda’s ‘B+’ Long-Term IDR, and zero uplift to the country ceiling.
Furthermore, it stated that SBU’s ‘b’ Viability Rating (VR) reflects the concentration of its operations in Uganda’s weak operating environment, characterised by very low GDP per capita and a weak operational risk index score, despite a relatively strong business and financial profile.
SBU’s National Ratings reflect its creditworthiness relative to other issuers in Uganda. SBU’s ‘AAA (uga)’ National Long-Term Rating is the highest possible on Uganda’s national scale, and considers potential support available from SBG.
The stable outlook reflects Fitch view that SBU’s creditworthiness compared to other domestic issuers is unlikely to change over a one- to two-year period.
Below are what Fitch said in the rating note.
Shareholder Support: SBU’s Long-Term IDR is one notch below that of SBG, reflecting SBU’s strategically important role in the group’s regional operations. SBG’s ability to provide support is underpinned by SBU’s small size (only 1% of SBG’s assets at end-2021).
Risks to Operating Environment Recovery: Second-order effects from the Russia-Ukraine conflict and lingering pandemic risks could negatively impact the economic recovery given Uganda’s small and undiversified economy, low vaccination rates and oil import reliance.
Leading Domestic Franchise: SBU is the largest bank in Uganda, accounting for 22% of banking sector assets at end-November 2021.
Its leading domestic franchise is underpinned by a strong corporate and investment banking (CIB) business, relationships with the leading corporates operating in Uganda, and other benefits derived from being part of a large pan-African banking group.
Stable Asset Quality: SBU’s impaired loans (Stage 3 loans under IFRS 9) ratio was stable at 4.6% at end-2021 (end-2020: 4.7%) supported by write-offs (1.7% of average loans). Total loan loss allowances/impaired loans were reasonable and stable at 99%.
Loans under repayment moratoria, mainly in the real estate, education and industrial sectors, increased to 8% of gross loans at end-2021 (end-2020: 4%) and may pressure asset quality when remaining credit relief measures expire at end-September 2022.
Stable Profitability: Profitability (operating profit/risk-weighted assets: 5.6%) remained strong in 2021, driven by a wide net interest margin (6.9%), high non-interest income and lower loan-impairment charges (LICs). Profitability is expected to further recover in 2022 given a likely rise in interest rates and stronger loan growth, but could be partially offset by elevated LICs due to write-offs and expiry of debt relief measures.
Healthy Capital Buffers: SBU’s Fitch Core Capital (FCC) ratio recovered to a high 21.2% at end-2021 (end-2020: 18.0%) due to strong internal capital generation and restrictions on dividend distribution. Strong pre-impairment operating profit (11.2% of average loans in 2021) provides a large buffer to absorb potential asset quality pressures. SBU’s regulatory capital ratios have healthy buffers above the new minimum requirements.
Stable Deposit Base: SBU’s funding profile is dominated by current and savings accounts (end-2021: 96% of deposits), supporting an inexpensive and stable deposit base. SBU’s balance sheet is structurally liquid, helping to mitigate high single-depositor concentration. #Fitch Affirms Stanbic Bank Uganda at ‘B+’; Outlook Negative
