Fitch Affirms Zenith Bank Plc at ‘B-‘ with Positive Outlook
Fitch Ratings has affirmed Zenith Bank Plc’s credit or Long-Term Issuer Default Rating (IDR) at ‘B-‘ with a Positive Outlook. Fitch has also affirmed the bank’s National Long-Term Rating at ‘AA-(nga)’ with a Stable Outlook.
Zenith bank’s ratings are driven by its standalone creditworthiness, as expressed by its ‘b-‘ Viability Rating (VR), the global rating agency said in a report published.
However, Fitch analysts noted that the bank viability rating is constrained by Nigeria’s Long-Term IDRs of ‘B-‘ due to the bank’s high sovereign exposure relative to capital and the concentration of its operations in Nigeria.
The rating said Zenith’s viability rating is one notch below the ‘b’ implied VR, reflecting the operating environment/sovereign rating constraint.
It noted however that Zenith Bank’s National Ratings are at the higher end of the scale due to its comparatively strong domestic franchise and financial profile.
Zenith Bank is Nigeria’s second-largest banking group, representing 14% of domestic banking system assets at end-2023, Fitch said, noting that the financial institution’s strong corporate-banking franchise and a retail strategy that leverages its digital channels.
Revenue diversification is strong, with non-interest income representing 47% of operating income in 1Q24 from 55% at the end of financial year 2023.
Fitch said Zenith bank’s single-borrower concentration is moderate, 20-largest loans representing 39% of gross loans in Q1-2024
According to the rating note, oil and gas exposure is material, representing 30% of gross loans at the end of 2023. “Strong loan growth may lead to asset-quality weakening as the loan book seasons”, Fitch said.
It stated that Zenith Bank’s sovereign exposure through securities and Central Bank of Nigeria (CBN) cash reserves is high. Due to credit migration, asset quality has dropped.
Zenith Bank’s impaired loans ratio increased to 4.3% at end-1Q24 from 1.9% in 2022 due mostly to successive devaluations of the naira, which increase the value of US dollar-denominated impaired loans in naira terms.
The bank’s stage 2 loans which settled at 34% of gross loans; concentrated within oil and gas and largely US dollar-denominated remain high and represent a risk to asset quality. Fitch forecasts the impaired loans ratio would increase moderately in the near term.
Fitch said Zenith bank operating returns averaging 5.6% of risk-weighted assets (RWAs) over the past four years. Analysts said the bank’s strong profitability is supported by a wide net interest margin (NIM), strong non-interest income and typically moderate loan impairment charges (LICs).
The rating note said its profitability has improved significantly since 2023 due to a wider NIM as interest rates and yields on government bonds increased, and large foreign-exchange (FX) revaluation gains following the naira devaluation.
The bank’s capital adequacy ratio (CAR) printed at 19% in 2023, but it has decreased following the naira devaluation. However, the ratio maintains a buffer over the current 15% minimum regulatory requirement.
Fitch said Zenith Bank is planning to issue at least NGN230 billions of core capital to meet new minimum paid-in capital requirements. #Fitch Affirms Zenith Bank Plc at ‘B-‘ with Positive Outlook
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