GCR Affirms UBA Ratings with Stable Outlook

GCR Affirms UBA Ratings with Stable Outlook

GCR Ratings has affirmed United Bank for Africa (UBA) Plc.’s long-term national and international scale ratings of AA+(NG) and B respectively, with a stable outlook.

While explaining its recent assessment of the Pan-African lender, GCR said the stable outlook reflects its opinion that UBA will maintain its robust financial profile over the next 12-18 months, such that key ratios to the national scale ratings would remain resilient to the operating environment challenges.

The rating firm also affirmed the national scale short-term rating of A1+ (NG), saying the ratings of United Bank for Africa Plc reflect the strengths and weaknesses of the Group.

“The affirmation of UBA’s ratings reflects its sustained franchise strength as one of the top banking groups in Nigeria with strong geographic diversification and a robust financial profile”.

UBA, a domestic systemically important bank in Nigeria, with a strong market share is among the country’s leading tier 1 banks, according to the rating note.

As of December 2021, the group’s share of the Nigerian banking sector’s total assets, deposits and loans stood at 13.7%, 15.8%, and 12.0% respectively, GCR said in the rating note. It said UBA’s franchise strength is solid, evidenced by its track record of providing banking services to a diversified client base of over 25 million customers.

The group has maintained a positive earnings trajectory through economic cycles with revenues driven by more stable sources, the rating note stated.

According to the GCR note, UBA Capital and leverage assessment is positive to the group’s ratings. It said the bank has demonstrated good capital management, with relatively high internal capital generation, comfortable dividend payout ratios, and moderate growth in risk-weighted assets.

The rating firm noted that the group’s capital adequacy ratio has been maintained well above the 15% regulatory minimum over the last five years, which provides strong buffers for loss absorption and legroom for growth.

GCR Core Capital ratio has been maintained within the intermediate range over the review period, with incremental improvements in the ratio, registering at 24.5% as of June 2022 versus 23.6% in 2021 and 21.8% in 2020.

Forward looking, GCR’s Core Capital ratio is expected to hover within the 24-26% range, albeit sensitive to the operating environment issues, according to the rating note, which added that its risk assessment is a positive rating factor.

“Credit losses have been contained below 1.0% through the cycle, which places the group at the top end of the market. Also, there has been a sustained improvement in the non-performing loans ratio”.

GCR stated that UBA’s NPL ratio reduced from 6.5% as of the end of the financial year 2018 to 3.5% as of June 2022, driven by reclassifications, write-offs and recoveries.

It said the group has also made progress in cleaning the loan book of the Ghana subsidiary, which has had a disproportionate contribution to NPLs. READ: Fitch Affirms United Bank for Africa at ‘B’ with Stable Outlook

The Pan African lender also ranked strongly on sectorial diversification, which GCR analysts said compares well to the market, with no single sector contributing up to 20% to gross loans, while counterparty party concentration, measured by the contribution of the top twenty loans to the loan book, has remained relatively stable at around 34.0%.

Notwithstanding, GCR believes asset quality remains sensitive to the challenging operating environment, particularly risks emanating from foreign currency (FCY) exposures.

FCY exposures for the parent stood at 33.8% as of June 2022 compared with 26.8% reported in 2021. There is also increased market risk, given the volatile interest rate environment, GCR said noting that the bank funding and liquidity assessment is a strong ratings positive.

UBA’s funding structure is highly stable, supported by its strong customer base and funding relationships which highlight market confidence in the group, GCR said in its assessment note.

It said behaviorally sticky customer deposits constitute the bulk of the funding base, contributing over 80% through the review period. The deposit book is well-diversified and supportive of funding costs for the group.

GCR said the top twenty depositors contributed a modest 14.4% and the relatively inexpensive current and savings accounts accounted for 88.7% of customer deposits as of December 2021 respectively, noting that liquidity is equally strong.

GCR liquid assets coverage of wholesale funding and customer deposits registering at relatively high levels of 10.6x and 57.2% respectively as of June 2022. # GCR Affirms UBA Ratings with Stable Outlook

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