(The following statement was released by the rating agency)
Fitch Ratings-London-May 04:
Fitch Ratings has downgraded United Bank for Africa Senegal's (UBA SEN)
Long-Term Issuer Default Rating (IDR) to 'B-' from 'B'. The Outlook is Negative.
UBA SEN's Short-Term IDR is affirmed at 'B', the Support Rating (SR) is
downgraded to '5' from '4'and the Viability Rating (VR) is affirmed at 'b-'.
The downgrade follows the downgrade of the bank's Nigerian parent, United Bank
for Africa Plc (UBA), on 26 March 2020 (see: Fitch Downgrades 3 Nigerian Banks
to 'B', Places All 10 Banks on Negative Watch,
https://www.fitchratings.com/site/pr/10115774).
Key Rating Drivers
IDRS and VR
UBA SEN's IDRs are driven by its standalone credit fundamentals, as reflected in
its VR, and underpinned by potential support from the bank's 86% parent, UBA.
The VR takes into account the negative implications of the coronavirus pandemic
on the bank's operating environment, high levels of overdue public sector loans,
high single-name borrower and depositor concentrations and limited capital
buffers. Profitability metrics are moderate but volatile, reflecting the sharp
expansion and contraction of loan portfolios. The Negative Outlook on the
Long-Term IDR reflects the significant risks to Senegalese banks' credit
profiles as a result of the coronavirus outbreak and its economic implications.
The outbreak will put additional pressure on banks' earnings, asset quality and
capitalisation.
We expect Senegal's GDP growth to slow to 2% in 2020 from recent annual growth
of around 6%. However, there is downside risk to this scenario given the rapidly
evolving impact of the pandemic and possible extensions in containment measures.
The bank regulator for countries in the West African Economic and Monetary Union
(WAEMU), which includes Senegal, announced measures in March 2020 to support
banking sector liquidity and is encouraging banks to adopt a flexible approach
to customers' debt servicing, which will allow banks to manage their loan
classifications and ease near-term pressure on capital ratios. However,
uncertainty about the timing and pace of the economic recovery will make it hard
to assess borrowers' future repayment capacity and, in the longer term, banks'
asset quality is likely to come under pressure. In addition, in early April
2020, Senegal's president called for restrictions on fees charged by banks,
which will further affect UBA SEN's profitability as fee income generally
contributes around 20% of operating income.
UBA SEN operates exclusively in Senegal and is entering the downturn with high
levels of overdue public sector loans, high single-name borrower and depositor
concentrations and limited capital buffers. Retention of net income in respect
of 2019 will help boost capital at UBA SEN. Profitability metrics are generally
reasonable but volatile, reflecting sharp expansion and contraction of loan
portfolios. In Fitch's view, the bank's financial profile, and therefore its VR,
could tolerate a short-lived period of slower economic growth during 2020 if
this is followed by stabilisation in 2021. However, an extended period of
suppressed economic activity would be more likely to result in a rating
downgrade.
SUPPORT RATING
UBA's ability to provide support has weakened following its downgrade to
'B'/RWN. The resulting downgrade of UBA SEN's Support Rating to '5' from '4'
reflects our view that support, either from UBA or from within the group,
although possible, cannot be relied on. Fitch also believes there is a moderate
risk of regulatory restrictions in Nigeria that could constrain UBA's ability to
provide timely and sufficient support to its foreign subsidiaries in case of
need.
UBA SEN ranks among UBA's five largest African subsidiaries by assets and
deposits but represents less than 5% of consolidated group assets. However, it
is an important part of UBA's western African franchise and we consider it to be
strategically important to UBA. Our assessment is that UBA would make efforts to
support UBA SEN, and we recognise that other subsidiaries based in countries in
the WAEMU region could also be called on to provide such support given that
funds can flow freely within the region. However, we are unable to assess the
extent to which support for UBA SEN from UBA's WAEMU subsidiaries is possible as
these banks are not rated by us.
RATING SENSITIVITIES
ISSUER DEFAULT RATINGS, VIABILITY RATING AND SUPPORT RATING
Factors that could, individually or collectively, lead to negative rating
action/downgrade:
A downgrade of UBA SEN's VR, combined with a downward revision of our assessment
of the probability of parental support, would lead to a downgrade of UBA SEN's
Long-Term IDR.
A downgrade of UBA SEN's VR would probably occur if Senegal's operating
environment experiences a prolonged period of economic disruption and slowdown,
and if this results in significant mounting pressures on asset quality, earnings
and capitalisation at UBA SEN. Given evidence that lenders such as the African
Development Bank and the IMF are continuing to provide support to Senegal, and
in light of measures taken by the government to contain the spread of the virus
and support affected households and businesses, we are not envisaging a
near-term downgrade of UBA SEN's VR. However, until the full impact of the
economic fallout on the bank becomes clear, risks are tilted to the downside.
A change in our view of institutional support would most likely follow either a
downgrade of UBA or regulatory restrictions in Nigeria that constrain the
parent's ability to support its foreign subsidiaries.
Factors that could, individually or collectively, lead to positive rating
action/upgrade:
An upgrade of UBA SEN's Long-Term IDR would result from an upgrade of its VR or
an upward revision of our assessment of the probability of parental support.
Significant strengthening of the bank's franchise and key financial metrics,
which we consider unlikely until Senegal's business and economic environment
develops in a more sustainable manner, could lead to a VR upgrade
An upward revision of our assessment of the probability of parental support is
unlikely, given the RWN on the parent's rating.
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions 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.
Public Ratings with Credit Linkage to other ratings
The IDRs of UBA SEN are linked to the ratings of United Bank of Africa plc
ESG Considerations
The highest level of ESG credit relevance, if present, is a score of 3. This
means ESG issues are credit-neutral or have only a minimal credit impact on the
entity(ies), either due to their nature or to the way in which they are being
managed by the entity(ies). For more information on Fitch's ESG Relevance
Scores, visit www.fitchratings.com/esg.
United Bank for Africa Senegal SA; Long Term Issuer Default Rating; Downgrade;
B-; RO:Neg
; Short Term Issuer Default Rating; Affirmed; B
; Viability Rating; Affirmed; b-
; Support Rating; Downgrade; 5
Contacts:
Primary Rating Analyst
Janine Dow,
Senior Director
+44 20 3530 1464
Fitch Ratings Ltd
30 North Colonnade, Canary Wharf
London E14 5GN
Secondary Rating Analyst
Vincent Martin,
Director
+44 20 3530 1828
Committee Chairperson
James Watson,
Managing Director
+7 495 956 6657
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
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/site/dodd-frank-disclosure/10120651
Solicitation Status
https://www.fitchratings.com/site/pr/10120651#solicitation
Endorsement Status
https://www.fitchratings.com/site/pr/10120651#endorsement_status
Endorsement Policy
https://www.fitchratings.com/regulatory
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