Four days after cutting Nigeria’s credit ratings deeper into junk territory, Moody’s Investors Service has downgraded the long-term deposit ratings, issuer ratings and the senior unsecured debt ratings of all its rated banks in the country.
The global credit rating agency said in a statement on Tuesday that it lowered the ratings on the banks to Caa1 from B3.
The affected lenders are Access Bank Plc, Zenith Bank Plc, First Bank of Nigeria Limited, United Bank for Africa Plc, Guaranty Trust Bank Limited, Union Bank of Nigeria plc, Fidelity Bank plc, FCMB (First City Monument Bank) Limited and Sterling Bank Plc.
Moody’s said it has changed the outlook to stable on the long-term deposit ratings, issuer ratings and senior unsecured debt ratings of the nine rated Nigerian banks.
The agency had on Friday cut Nigeria’s credit ratings from B3 to Caa1, seven levels below investment grade.
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According to Moody’s, obligations rated Caa are judged to be of poor standing and are subject to very high credit risk.
“Moody’s downgrade of the long-term ratings of nine Nigerian banks reflects a combination of (a) the weakening operating environment, as captured by Moody’s lowering of its macro profile for Nigeria to ‘very weak’ from ‘very weak+’; and (b) the interlinkages between the sovereign’s weakened creditworthiness (as indicated by the downgrade of the sovereign rating to Caa1 from B3) and the banks’ balance sheets, given the banks’ significant holdings of sovereign debt securities,” it said.
It said the revised macro profile for Nigeria reflected its expectation that depressed and uncertain oil production, capital outflows amid flight to quality and the government’s constrained access to external funding would likely continue to weigh on Nigeria’s external position in 2023.
“The revised macro profile also captures the risks that foreign currency shortages in the country pose to the liquidity, capitalisation and asset quality of Nigerian banks,” Moody’s said.
It said the rated Nigerian banks have significant direct and indirect exposure to the Nigerian government, with a significant portion of their assets located in the country, and government debt holdings representing 28 percent of their aggregate total assets as of June 2022.
“Government exposure links the banks’ credit profiles with the sovereign’s, whose rating was downgraded on 27 January 2023, to reflect Moody’s expectation that the government’s fiscal and debt position will continue to deteriorate,” the agency said. “The government faces wide-ranging fiscal pressure while the capacity to respond remains constrained by Nigeria’s long-standing institutional weaknesses and social challenges.”