International Ratings Agency, Fitch Ratings has placed Ecobank Nigeria, ENG on six-month probation within which it will review the Ratings Watch Negative, RWN awarded the Nigerian lender recently.
Fitch had rated the commercial bank RWN, citing risk factors such as Nigeria’s challenging operating environment, high credit concentrations and exposure to market risks, asset-quality issues, weak profitability, and modest capitalization.
“ENG’s National Long-Term Rating is among the lowest of all Nigerian banks under Fitch’s coverage, which primarily reflects its weak earnings and modest capitalization,” Fitch said in June.
The agency however said in its latest ratings that it foresees a positive outlook for the commercial bank in the ‘next six months” as it moves to strengthen its creditworthiness as the economic situation in the country improves.
“Within the next six months when exchange-rate volatility may recede, the impact on regulatory capital ratios and common equity double leverage is clear, and the scale of the second-order economic effects of the devaluation on loan quality becomes evident.”
For the bank to be upgraded, Fitch said in the report it must “remain compliant with its minimum CAR requirement following the devaluation, with sufficient buffers to accommodate increase in credit concentration and loan-quality risks.
“An upgrade of ENG’s VR and Long-Term IDR would require a sovereign upgrade and an improvement in operating conditions in conjunction with a strengthened financial profile.”
The rating agency however warned that the bank’s impaired loans ratio will increase in the near term at a faster pace following the devaluation of the naira and fuel subsidy removal as borrowers contend with higher inflation and interest rates.
