Fitch Affirms United Bank For Africa at 'B'; off RWN; Outlook Stable

(The following statement was released by the rating agency)
Fitch Ratings-London-05 October 2020:
Fitch Ratings has affirmed United Bank for Africa (UBA) Plc's ratings,
including the Long-Term Issuer Default Rating (IDR) at 'B', and removed them
from Rating Watch Negative (RWN). The Outlook is Stable. A full list of rating
actions is below.

The removal of the RWN on UBA's Long-Term IDRs, Viability Rating (VR) and
National Ratings reflects Fitch's view of receding near-term risks to the
bank's credit fundamentals from the economic fallout arising from the oil
price crash and coronavirus pandemic.

In our opinion the impact of the economic downturn on UBA's credit profile is
tolerable at the bank's current rating level and it will take several quarters
before the full extent of the crisis on corporates and households is seen in
its financial metrics. Since our previous rating action in March, regulatory
forbearance on asset classification and banks' own debt relief measures have
significantly eased pressures on the sector's asset quality. Debt relief
measures are, nevertheless, temporary and with the eventual easing of fiscal
and monetary support from the Central Bank of Nigeria (CBN), we see a material
risk that bank asset quality could deteriorate faster, unless economic
recovery gathers pace.

The Stable Outlook on UBA's Long-Term IDR reflects our view that the bank's
rating has sufficient headroom at this level to absorb moderate shocks from
sustained downside risks to the operating environment, the heightened level of
risk in doing banking business and resulting risks to its financial
performance over the next 12-18 months.
Key Rating Drivers
IDRS, VR, AND SENIOR DEBT RATINGS

The IDRs and senior debt ratings are driven by UBA's intrinsic
creditworthiness, as defined by the bank's 'b' VR. The VR considers UBA's
exposure to the Nigerian volatile operating environment, but also the bank's
healthy profitability and adequate capitalisation, providing reasonable
capacity to absorb losses from the downturn. Asset-quality erosion has been
limited to date, while our assessment also considers the bank's sizeable
non-loan assets, dominated by cash and balances, restricted deposits
(comprising mainly cash reserve requirements held at the CBN) and government
securities. Nigeria's sovereign rating is 'B' with a Stable Outlook.

The ratings also reflect UBA's pan-African franchise with subsidiaries in 19
countries outside of Nigeria (with 60% of net income and 29% of assets at
end-1H20 coming from the rest of Africa). We believe UBA's ability to
capitalise on business and trade flows and to attract deposits across the
continent is a competitive advantage relative to the peer group.

Asset-quality metrics compare well against the peer group's with UBA's
impaired (Stage 3 under IFRS 9) loans-to-gross loans at 4.1% at end-1H20
(2019: 5.3%), supported by high reserve coverage at 104%. We also consider
UBA's lower oil and gas exposure at 21% of net loans compared with the sector
average of 30% and the small size of the bank's loan book at 33% of total
assets. That said UBA continues to hold a significant stock of Stage 2 loans
(19% of gross loans at end-1H20), which are concentrated by single borrower,
exposing the bank to event risk. Over the next few quarters, we expect a
moderate increase in UBA's impaired loan ratio with its customers affected by
recession, currency devaluation, US dollar shortages and distress in certain
key industry segments, including the oil sector. At end-1H20, around 15% of
the bank's gross loans were subject to debt relief, broadly in line with the
peer group's.

UBA's profitability metrics have been consistently strong through the cycle
with an operating profit-to- risk weighted assets (RWA) of 5.4% at end-1H20,
despite higher loan impairment charges and falling asset yields. Pressure on
net interest income was to some extent offset by lower funding costs. For
non-interest revenue, we believe the impact of regulatory changes on
transaction fees should have bottomed out in 1H20 and higher transaction
volumes as the economy begins to pick up should provide some cushion. Due to
UBA's geographical footprint further volatility in earnings could stem from
the impact of currency translation of foreign operations, which has been large
in recent years.

Capitalisation is expected to be under moderate pressure as RWAs are inflated
by currency devaluation. Capital ratios have remained strong through the cycle
and at end-1H20 its Fitch Core Capital/RWAs was 28.6%. This is driven by UBA's
low risk weight density due to the highly liquid nature of the bank's balance
sheet, including large holdings of government securities and financial
collateral, which provides capital relief.

UBA's loan-to-deposit ratio of 48% at end-1H20 reflects a liquid balance sheet
comprising mainly investment securities and cash and placements, which helps
to cover short-term maturity gaps in naira. We consider naira liquidity at the
bank to be ample. The stability of its funding base comes from current and
saving accounts, which have risen in 1H20 to make up 78% of UBA's customer
deposit base. Deposits now account for 81% of funding. UBA is not immune to
the current foreign-currency shortage in Nigeria and has liquidity gaps at
shorter maturities on a contractual basis. This creates a reliance on the
stability of domiciliary deposits and loan repayments in foreign currency to
meet its own debt obligations. Domiciliary deposits have shown stability over
the last crisis in 2016 and have remained sticky in behaviour in 1H20.

SENIOR DEBT

UBA's senior unsecured debt is rated in line with the bank's Long-Term IDR,
given that the likelihood of default on these notes reflects the likelihood of
default of the bank. Fitch assigns a Recovery Rating (RR) of 'RR4' to this
issue, reflecting average recovery prospects.

SUPPORT RATING AND SUPPORT RATING FLOOR

Sovereign support to banks cannot be relied on given Nigeria's weak ability to
provide support, particularly in foreign currency. The Support Rating Floor of
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.

NATIONAL RATINGS

UBA's National Ratings reflect the bank's creditworthiness relative to that of
other issuers in Nigeria and are driven by the bank's standalone strength.
They are lower than the highest rated Nigerian peers' due to UBA's weaker
profitability and capitalisation metrics. UBA's National Short-Term Rating is
the lower of the two possible options for an 'A+(nga)' National Long-Term
Rating under Fitch's criteria, reflecting potential risks to funding and
liquidity from market instability.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating
action/upgrade:

Upside to the ratings is unlikely unless the bank sees a material improvement
in operating conditions and the sovereign is upgraded.

A sustained improvement in financial metrics, in particular, capitalisation on
a non-risk adjusted basis.

Factors that could, individually or collectively, lead to negative rating
action/downgrade:

Negative rating action on the sovereign and/or if our assessment of the
operating environment is revised downward. The latter could be driven by
persistent post-lockdown disruption, weak oil price and extended global
economic turmoil, giving rise to a more severe economic and financial market
fallout than currently expected.

UBA's impaired loan ratio rises substantially above 5%, for instance due to
material losses at regional operations, with the Fitch Core Capital ratio
declining below 15% for a sustained period.

A severe tightening in the bank's foreign-currency liquidity.

SENIOR DEBT

UBA's senior unsecured debt is sensitive to a change in UBA's Long-Term IDR.
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond
issuers have a best-case rating upgrade scenario (defined as the 99th
percentile of rating transitions, measured in a positive direction) of three
notches over a three-year rating horizon; and a worst-case rating downgrade
scenario (defined as the 99th percentile of rating transitions, measured in a
negative direction) of four notches over three years. The complete span of
best- and worst-case scenario credit ratings for all rating categories ranges
from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on
historical performance. For more information about the methodology used to
determine sector-specific best- and worst-case scenario credit ratings, visit
[https://www.fitchratings.com/site/re/10111579]
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING The
principal sources of information used in the analysis are described in the
Applicable Criteria.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit
relevance is a score of '3'. This means 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
Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.
United Bank For Africa Plc; Long Term Issuer Default Rating; Affirmed; B;
Rating Outlook Stable
; Short Term Issuer Default Rating; Affirmed; B
; National Long Term Rating; Affirmed; A+(nga); Rating Watch Off
; National Short Term Rating; Affirmed; F1(nga); Rating Watch Off
; Viability Rating; Affirmed; b; Rating Watch Off
; Support Rating; Affirmed; 5
; Support Rating Floor; Affirmed; NF
----senior unsecured; Long Term Rating; Affirmed; B; Rating Watch Off

Contacts:
Primary Rating Analyst
Mahin Dissanayake,
Senior Director
+44 20 3530 1618
Fitch Ratings Ltd
30 North Colonnade, Canary Wharf
London E14 5GN

Secondary Rating Analyst
Christopher Ogunleye,
Analyst
+44 20 3530 1192

Committee Chairperson
Olga Ignatieva,
Senior Director
+7 495 956 6906

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. 28 Feb 2020) (including rating assumption
sensitivity) (https://www.fitchratings.com/site/re/10110041)
National Scale Rating Criteria (pub. 08 Jun 2020)
(https://www.fitchratings.com/site/re/10121358)

Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
(https://www.fitchratings.com/site/dodd-frank-disclosure/10137986)
Solicitation Status
(https://www.fitchratings.com/site/pr/10137986#solicitation)
Endorsement Status
(https://www.fitchratings.com/site/pr/10137986#endorsement_status)
Endorsement Policy
(https://www.fitchratings.com/site/pr/10137986#endorsement-policy)

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