(The following statement was released by the rating agency)
Fitch Ratings-London-October 29: Fitch Ratings has affirmed Guaranty Trust Bank
Plc's (GTB) Long-Term Foreign Currency Issuer Default Rating (IDR) at 'B+' with
Stable Outlook and Viability Rating (VR) at 'b+'. A full list of rating actions
is at the end of this rating action commentary.
KEY RATING DRIVERS
IDRS, VR, NATIONAL RATINGS AND SENIOR DEBT
GTB's IDRs and National Ratings are driven by the bank's intrinsic
creditworthiness, as defined by its VR, the highest assigned by Fitch to a
Nigerian bank. Like all Nigerian banks, GTB's VR is constrained by the domestic
operating environment where economic recovery is fragile and opportunities for
sound credit growth are limited. The operating environment has a high influence
on the VR. The VR also considers GTB's strong financial metrics and high
performance ratios, comfortable capital buffers and highly concentrated loan
book.
GTB is one of Nigeria's largest banks, controlling an overall domestic market
share of approximately 11%. The experienced management team delivers especially
strong performance metrics and GTB is the country's most profitable bank. It
consistently achieves an annual operating return on average assets in excess of
Strong earnings support capitalisation and capital adequacy is a rating
strength. GTB's Fitch Core Capital/risk weighted assets ratio reached a high
26.7% at end-June 2019 and the bank's internal target is to maintain regulatory
capital ratios in excess of 17%, comfortably above the 15% prudential minimum
required.
Asset quality ratios compare well with peers and efforts to recover impaired
loans are proving successful. The impaired loans/total loans ratio is on a
declining trend, improving to 6.8% at end-June 2019. Loan loss reserve coverage
reached 80%, which appears adequate considering available collateral. GTB's IFRS
9 Stage 2 loans were equivalent to approximately 11% of loans at end-June 2019,
which is broadly in line with close peers.
Single borrower and sector concentrations are significant, as is common in
Nigeria, exposing the bank to unexpected credit losses. At end-June 2019, the
top 20 exposures were equivalent to approximately 47% of gross loans and around
40% of loans were extended to oil-related companies. Asset quality in the
oil-related portfolio is sound, suggesting good underwriting standards. However,
oil price trends can be volatile and the high level of concentration indicates a
relatively high risk appetite. Given this, we consider GTB's efforts to boost
loan loss reserve coverage as prudent. Loan loss reserves covered around 80% of
impaired loans at end-June 2019 and management's target is to increase this to
100% by end-2019.
GTB typically operates with a high net open US dollar structural position, but
market risk is well monitored and risk management tools are well developed.
Relative exchange rate stability since 2017 reduced the impact of exchange rate
fluctuations on profits and balance sheet ratios. GTB is positioned to benefit
from naira depreciation as 40% of assets and 28% of liabilities were US
dollar-denominated at end-June 2019.
GTB's balance sheet is liquid. Loan deleveraging continued in 1H19, while
deposit inflows are still positive (up 6%). Excess liquidity continues to be
invested into Nigerian government securities. Regulatory pressure to encourage
banks to lend to the real economy may result in positive loan growth during
2H19. Liquidity management is sound in both foreign and local currency.
GTB's National Ratings reflect its creditworthiness relative to the best credits
in Nigeria.
SUPPORT RATING AND SUPPORT RATING FLOOR
Fitch believes that sovereign support to Nigerian banks cannot be relied on
given Nigeria's weak ability to provide support, particularly in foreign
currency. In addition, there are no clear messages of support from the
authorities regarding their willingness to support the banking system.
Therefore, the Support Rating Floor for all Nigerian banks is 'No Floor' and all
Support Ratings are '5'. This reflects our view that senior creditors cannot
rely on receiving full and timely extraordinary support from the Nigerian
sovereign if any of the banks become non-viable.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE RELEVANCE SCORES
The highest level of environmental, social and governance (ESG) credit relevance
for GTB is a score of 3. ESG issues are credit neutral or have only a minimal
credit impact on the entity, either due to their nature or the way in which they
are being managed by the entity. For more information on our ESG Relevance
Scores, visit www.fitchratings.com/esg.
RATING SENSITIVITIES
IDRS, VIABILITY RATING, NATIONAL RATINGS AND SENIOR DEBT
GTB's IDRs are sensitive to a rating action on its VR. GTB's VR is primarily
sensitive to our assessment of Nigeria's operating environment because the bulk
of its activities are concentrated in its home country and the correlations
between the sovereign and banking sector are high. The Stable Outlook on the
sovereign rating suggests changes are not expected over the rating horizon. The
VR is also primarily sensitive to a material deterioration in asset quality.
This could be triggered, for example, by oil price weakness. GTB's National
Ratings are sensitive to a change in its creditworthiness relative to other
Nigerian banks. An upgrade of GTB's IDRs would require an upgrade of the
Nigerian sovereign rating.
SUPPORT RATING AND SUPPORT RATING FLOOR
The Support Rating and the Support Rating Floor are sensitive to any change in
assumptions around the propensity or ability of the sovereign to provide timely
support to the bank. Given Nigeria's sovereign ratings, this is not our base
case.
The rating actions are as follows:
Guaranty Trust Bank Plc
Long-Term IDR affirmed at 'B+'; Outlook Stable
Short-Term IDR affirmed at 'B'
Viability Rating affirmed at 'b+'
Support Rating affirmed at '5'
Support Rating Floor affirmed at 'No Floor'
National Long-Term Rating affirmed at 'AA(nga)'
National Short-Term Rating affirmed at 'F1+(nga)'
Contact:
Primary Analyst
Janine Dow
Senior Director
+44 203 530 1464
Fitch Ratings Limited
30 North Colonnade
London E14 5GN
Secondary Analyst
Tim Slater
Senior Analyst
+44 203 530 1791
Committee Chairperson
Mark Young
Managing Director
+44 203 530 1318
Media Relations: Louisa Williams, London, Tel: +44 20 3530 2452, Email:
louisa.williams@thefitchgroup.com.
Additional information is available on www.fitchratings.com
Applicable Criteria
Bank Rating Criteria (pub. 12 Oct 2018)
https://www.fitchratings.com/site/re/10044408
National Scale Ratings Criteria (pub. 18 Jul 2018)
https://www.fitchratings.com/site/re/10038626
Short-Term Ratings Criteria (pub. 02 May 2019)
https://www.fitchratings.com/site/re/10073011
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/site/dodd-frank-disclosure/10099666
Solicitation Status
https://www.fitchratings.com/site/pr/10099666#solicitation
Endorsement Policy
https://www.fitchratings.com/regulatory
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