GCR Affirms UBA AA+ Rating with Stable Outlook
GCR Ratings has affirmed United Bank for Africa Plc’s long-term national and international scale ratings of AA+(NG) and B respectively, with a stable outlook. Concurrently, GCR also affirmed the national scale short-term rating of A1+(NG), noting that ratings reflect the creditworthiness of the Group.
According to GCR, the ratings affirmation balances the group’s sound competitive position, strong capitalisation, good risk profile, adequate funding, and liquidity profile against the weaker operating environments of major African countries where the group operates.
GCR analysts wrote that the group’s competitive position is a major ratings strength, supported by its extensive Pan-African footprint, with operations spread across twenty African countries alongside international offices in the United Kingdom, the United States of America, France, and the United Arab Emirates.
UBA registered a balance sheet size of N12.9 trillion which was equivalent to USD 8.1 billion as of 30 September 2024, controlling 9.0%, 9.8% and 12.6% of the Nigerian banking industry’s total assets, gross loans, and customer deposits respectively.
The group operating revenues registered a three-year cumulative average growth rate (CAGR) of 51.2% to N1.5 trillion or USD961 million, with net interest income and non-interest income accounting for 71.7% and 28.9% respectively as of the same date.
Positively, in Q3 2024, the contribution of market-sensitive income to operating revenues declined to 11.9% from 41.5% in 2022, indicating the improved yield on interest-earning assets, according to the rating note.
“We expect the group’s sound competitive profile to be sustained over the rating horizon”, GCR said.
The group’s shareholders’ funds grew considerably by 76.6% to N3.5 trillion or USD2.2 billion as of 30 September 2024, underpinned by increased internal capital generation as well as translation and fair value gains resulting from the devaluation of the reporting currency.
Nonetheless, the GCR core capital ratio declined to 22.9% as of 30 September 2024 from 26.5% in Dec 2023 following the faster growth in Risk Weighted Assets (RWA) relative to internal capital generation.
The rating agency said over the next 12–18 months, the increased earnings accretion and the planned capital injection could support the GCR core capital ratio above 25%.
“We considered the loan loss reserve coverage of stage 3 loans to be low at 58.0% as of 30 September 2024 versus 71.3% in Dec 2023, following the considerable increase in the impaired loans”.
UBA gross loans and advances grew by 69.9% to N 8.1 trillion as of 30 September 2024 from N 5.5 trillion in Dec 2023, largely due to the impact of naira devaluation and organic growth.
However, the group’s assets quality metrics have deteriorated in the last two years, with the non-performing loan (NPL) ratio weakened to 7.2% from 6.2% in December 2023 and 3.4% 2022, according to rating note.
Analysts attribute this to the credit migration of a general commerce exposure and the adverse impact of the strains in the operating environment, adding that the group has commenced active loan recovery efforts.
Similarly, the credit loss ratio decreased to 1.8% in September 2024 from 4.8% in 2023 due to major recoveries during the year, the rating note said.
GCR rating stated that the group’s loan book is well-diversified across sectors, with no single sector contributing more than 20% to the loan portfolio as of 30 September 2024.
Also, counterparty concentration remains relatively low, with the top twenty largest obligors accounting for 37.8% of the loan portfolio as of June 2024 versus 35.5% in Dec 2023.
The proportion of foreign currency (FCY) loans to gross loans registered at 65.6% versus 69.3% in Dec with the inherent FCY risks mostly mitigated through natural hedges.
“While asset quality metrics are susceptible to the challenging operating environments of most African markets, the group’s stringent underwriting approach and intensified recovery efforts could support the asset quality metrics over the next 12-18 months”, GCR stated.
The rating agency indicated that its assessment of funding and liquidity is positive to the ratings, underpinned by a stable funding structure and a sufficiently liquid balance sheet.
UBA is primarily funded by customer deposits which accounted for 83.2% of the total funding base as of 30 September 2024 versus 81.8% in Dec 2023.
The rating agency said UBA Customer deposits grew by 90.3% in 2023 and further by 54.2% to register at N23.0% trillion or USD 14.3 billion as of Q3 2024, supported by a growing retail franchise and the impact of the naira devaluation.
Analysts said they do not expect any considerable changes in the funding and liquidity profile over the next 12 to 18 months.
The stable outlook reflects expectations that the group’s GCR core capital ratio will range above 25%, predicated on increased internal capital generation and possible capital injection over the next 12-18 months. Also, the bank’s funding structure is also expected to remain sound. FX Stability: CBN Sells 122.671m Dollars to 46 Authorised Dealers
