Fitch Ratings Envisages Potential Upgrade for ENG’s National Ratings Amid Improved Creditworthiness

Fitch Ratings, the international rating agency, has indicated the potential for an upgrade of ENG’s National Ratings as it observes an improvement in the company’s creditworthiness relative to other Nigerian issuers.

According to Fitch, the resolution of the Rating Watch Negative (RWN) on ENG is expected within the next six months. This timeframe aligns with the anticipation of reduced exchange-rate volatility, clearer understanding of the impact on regulatory capital ratios and common equity double leverage, and greater visibility on the second-order economic effects of the currency devaluation on loan quality.

In a recent report, Fitch highlighted certain factors that could lead to positive rating action and an upgrade for ENG. These factors include sustained compliance with minimum capital adequacy requirements after the devaluation, with sufficient buffers to manage increased credit concentration and loan-quality risks.

Fitch emphasized that an upgrade of ENG’s Viability Rating (VR) and Long-Term Issuer Default Rating (IDR) would necessitate a sovereign upgrade, improved operating conditions, and a strengthened financial profile.

Earlier, Fitch Ratings had placed Ecobank Transnational Incorporated’s (ETI) and Ecobank Nigeria Limited’s (ENG) Viability Ratings of ‘b-‘ and Long-Term Issuer Default Ratings of ‘B-‘ on Rating Watch Negative (RWN) due to the significant devaluation of the Nigerian naira.

The current RWN reflects the concern that ENG may potentially breach its minimum capital requirements as a direct consequence of the devaluation, as stated by Fitch in a released statement.

As ENG strives to meet regulatory standards and enhance its financial position, its progress will be closely monitored by Fitch Ratings, which will assess the potential for an upgrade in ENG’s National Ratings.

“For ENG, it also reflects increased risks to capital from large foreign-currency (FC) problem loans (Stage 2 and Stage 3 under IFRS 9) that have been inflated by devaluation, which may necessitate greater prudential provisions and exert further pressure on the bank’s total capital adequacy ratio (CAR), in addition to broader loan quality risks stemming from the devaluation.

Fitch expects to resolve the RWN 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.

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