(The following statement was released by the rating agency)
Fitch Ratings-London-October 29: Fitch Ratings has affirmed Nigeria-based Zenith
Bank's Long-Term Issuer Default Rating (IDR) at 'B+' with a Stable Outlook and
Viability Rating (VR) at 'b+'. A full list of rating actions is below.
KEY RATING DRIVERS
IDRs, NATIONAL RATINGS AND VR
Zenith's Long- and Short-Term IDRs are driven by its standalone
creditworthiness, as captured by its VR. Zenith's VR is highly influenced by the
domestic operating environment, reflecting weak GDP growth, policy uncertainty
and increasing regulatory risks.
Zenith's VR is among the highest assigned by Fitch to a Nigerian bank and
reflects the bank's well-entrenched domestic franchise and market share. Zenith
is particularly strong in the prime corporate segment with a growing focus on
retail banking. The bank's franchise strength, management quality and clear
strategy have allowed it to outperform peers through several cycles.
Zenith's financial metrics are also strong compared with peers. Solid earnings
generation and profitability (operating profit/risk-weighted assets of 7.1% in
1H19) reflect good margins, high levels of non-interest revenue and good cost
control. Loan impairment charges have increased moderately and reflect some
asset quality deterioration.
Zenith's impaired loans/IFRS 9 Stage 3 ratio was 8.5% at end-1H19 (slightly up
from 9.0% at end-2018) with loan loss allowance coverage at a comfortable 90%.
Impaired loans rose in 2018 from consistently low levels due to a single large
problem loan, highlighting the bank's sensitivity to credit concentrations by
obligor and industry. With recoveries and write-offs our expectation is that the
impaired loan ratio will start to decline by end-2020.
The bank's high capitalisation is a rating strength, with a regulatory total
capital adequacy ratio of 23.4% at end-1H19. This is comfortably above the
minimum 15% regulatory requirement (excluding its DSIB buffer). Strong
profitability and high levels of internal capital generation (dividend payout
ratio of 50%) underpin capitalisation.
Zenith is primarily deposit funded and attracts low-cost corporate and
institutional deposits. However, some of these deposits are also confidence and
price sensitive, particularly its foreign currency domiciliary deposits
(end-1H19: 27% of total customer deposits). As one of Nigeria's leading banks,
Zenith has good access to market funding. In September 2019, the bank redeemed
USD392.6 million of its USD500 million senior unsecured bond due 2022, partly
because of its stronger liquidity position.
Zenith's National Ratings reflect the bank's strong creditworthiness relative to
other issuers in Nigeria.
SENIOR DEBT
Senior debt issued by Zenith is rated at the same level as the bank's IDRs
because in our view, the likelihood of default on these notes reflects that of
the bank. Where a bank has a Long-Term IDR of 'B+' or below, we usually assign a
Recovery Rating (RR) to the issue. The RR assigned to these notes is 'RR4',
indicating average recovery prospects.
SUPPORT RATING AND SUPPORT RATING FLOOR
Fitch believes that sovereign support to Nigerian banks cannot be relied on
given Nigeria's (B+/Stable) weak ability to provide support, particularly in
foreign currency. Therefore, 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.
RATING SENSITIVITIES
IDRS, SUPPORT RATINGS, NATIONAL RATINGS AND SENIOR DEBT
Zenith's IDRs are sensitive to a rating action on the bank's VR, which in turn
is primarily sensitive to our assessment of the operating environment in
Nigeria. This is because the bulk of the bank's activities are concentrated in
the domestic economy and there is a high correlation between sovereign and
banking sector risks.
Zenith's VR is also sensitive to significant deterioration in its asset quality
and a resultant weakening of its loss absorption capacity. However, this is not
our base case. Upside to the ratings is limited given the operating environment.
Zenith's National Ratings are sensitive to a change in the bank's
creditworthiness relative to other Nigerian banks.
The Support Rating and Support Rating Floor are sensitive to a 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.
Ratings on the senior debt will change in line with the bank's IDRs.
ENVIRONMENT, SOCIAL AND GOVERNANCE SCORES
The highest level of environmental, social and governance (ESG) credit relevance
for Zenith is a score of 3. ESG issues are credit-neutral or have only a minimal
impact on the entity, either due to their nature or to the way in which they are
being managed by the entity.
The rating actions are as follows:
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 'No Floor';
National Long-Term Rating affirmed at 'AA(nga)'
National Short-Term Rating affirmed at 'F1+(nga)'
Long-term senior unsecured debt affirmed at 'B+'/RR4
Short-term senior unsecured debt issues affirmed at 'B'
Contact:
Primary Analyst
Mahin Dissanayake
Senior Director
+44 20 3530 1618
Fitch Ratings Ltd
30 North Colonnade
London E14 5GN
Secondary Analyst
Kurt Boere
Analyst
+44 203 530 2707
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/10099668
Solicitation Status
https://www.fitchratings.com/site/pr/10099668#solicitation
Endorsement Policy
https://www.fitchratings.com/regulatory
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