S&P revises Ecobank Nigeria’s outlook to stable

Standard & Poor’s (S&P) ratings has revised its outlook on Ecobank Nigeria Limited to stable from negative and affirmed its ‘B/B’ long- and short-term counterparty credit ratings on the lender.

In a statement released, the ratings agency explained that Ecobank Nigeria is considered to be a core subsidiary within the Ecobank Group, adding that as a result, its ratings on the lender reflect the wider group credit profile.

It further stated that outlook revision reflects its view: “Ecobank Group’s management has addressed the significant liquidity risks and is improving the capitalization and asset quality of the Nigerian business, while implementing a wider strategy of improving asset quality and financial performance around the group.”

According to S&P, “Ecobank Nigeria is considered to be a core subsidiary within the Ecobank Group; as a result, our ratings on ENG (Ecobank Nigeria) reflect the wider group credit profile. On Dec. 31, 2016, ENG accounted for approximately 30per cent of total assets and loans and 46per cent of total adjusted capital (TAC) of the group.

Furthermore, a large percentage of the group’s asset quality issues emanated from Nigeria because of ENG’s legacy problem loans and its concentrated lending in U.S. dollars to the oil and gas sector.”

The agency also stated that the financial year ending December 2016 was difficult for the group in terms of asset quality, profitability, and ultimately capitalization, adding that risk costs were significantly higher than it (S&P) expected at year-end 2016, when loan-loss provisions reached 7.95per cent of average customer loans, up from 4.33per cent a year earlier.

It also noted that the group posted a loss of $200 million in 2016, pointing out total comprehensive loss stood at $866 million, largely because of adverse foreign exchange (FX) movements, which significantly impaired the group’s capitalization.

The agency, however, stated: “We consider that the FX translation losses, combined with the reshaping of the business by the new management team and institutional shareholders, reflect the difficult macroeconomic and legacy issues in the group’s key markets, especially Nigeria. Positively, going into the first half of 2017, the group gained some momentum on strengthening control of risk and operating costs. Ultimately, this will improve the group’s bottom line.”

In addition, the agency said it positively viewed the groups’ solution for stabilizing its core subsidiary in Nigeria.