Moody’s Investors Service (Moody’s), a global rating agency has upgraded its outlook on nine Nigerian banks to ‘Stable’ from ‘Negative’ even as it affirmed it’s B2 rating of the banks.

Moody’s explained that the affirmation of the Nigerian banks’ ratings is based on  expectation that the banks’ solvency will remain at adequate levels over the next 12-18 months.

The banks 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 Limited and Sterling Bank Plc.

The rating agency, yesterday, stated: “Moody’s Investors Service (Moody’s) has today affirmed the B2 long-term local and foreign currency deposit ratings as well as senior unsecured ratings, where applicable, of the following Nigerian banks: Access Bank Plc, Zenith Bank Plc, First Bank of Nigeria Limited, United Bank for Africa Plc, Guaranty Trust Bank Plc (recently renamed “Guaranty Trust Bank Limited”), Union Bank of Nigeria plc, Fidelity Bank plc, FCMB (First City Monument Bank) Limited and Sterling Bank Plc. At the same time, the rating agency changed the outlook on all the banks’ long-term deposit ratings to stable from negative.

“The rating action reflects Moody’s expectation that higher oil prices and some measures taken by the government will help stabilise the sovereign’s credit metrics, thus stabilising the sovereign credit profile and, in turn, those of the banks. Moody’s affirmed Nigeria government’s long-term issuer ratings of B2 and changed its outlook to stable from negative on 29 November 2021.”

Explaining the rationale for the ratings, Moody’s said: “The rating action reflects the banks’ financial profiles which have been generally resilient to the difficult operating environment in Nigeria.

“On average, the Nigerian banks’ asset quality has remained resilient and banks’ pre-provision profitability is recovering to pre-pandemic levels while their capital and funding positions, particularly in local currency, have remained solid.

“The change of outlook to stable also reflects the links of Nigerian banks’ credit profiles to that of the government, whose outlook has been stabilised on 29 November, given the sizeable exposure to the sovereign debt securities, averaging 245% of the rated banks’ capital bases as of June 2021. “Furthermore, Moody’s expects that the capacity of the Nigerian government to support the country’s banks will remain unchanged.

“The affirmation of the deposit ratings for the nine banks reflects Moody’s expectation that Nigerian banks’ solvency will remain at adequate levels over the next 12-18 months, supported by resilient profitability, while asset quality towards the large energy sector will benefit from the current high oil prices.

“Selective lending by banks in the past three years has restrained the formation of nonperforming loans (NPLs). Reported systemwide NPL ratio has declined to 5.3% as of October 2021 from 6.0% as year-end 2020; the improvement also reflects the banks continuing to benefit from restructuring and forbearance.

“Going forward, once forbearance lapses, the rating agency expects some asset quality deterioration but the high oil prices, if sustained, will likely mitigate the pressures”

Vanguard