London – 10 Feb 2021: Fitch Ratings has assigned Ecobank Nigeria Limited’s (ENG; B-/Stable/b-) forthcoming US dollar-denominated senior unsecured notes an expected ‘B-(EXP)’ rating with a Recovery Rating of ‘RR4’. The notes are being issued by EBN Finance Company BV a special purpose vehicle of ENG incorporated in the Netherlands. ENG’s other ratings are unaffected by today’s rating action.
The proceeds of the senior participation notes will be used by ENG for general-banking purposes, including providing the bank with stable medium-term funding.
The assignment of final rating is contingent on the receipt of final documents conforming to information already received.
KEY RATING DRIVERS
The rating of the notes is solely driven by ENG’s Long-Term Issuer Default Rating (IDR) of ‘B-‘. This reflects Fitch’s view that default of these senior unsecured obligations would reflect a default of ENG in accordance with Fitch’s rating definitions and the transaction documents described in the prospectus.
Fitch has given no consideration to the underlying transaction structure as it believes that the issuer’s ability to satisfy payments due on the notes will ultimately depend on ENG satisfying its senior unsecured payment obligations to the issuer under the transaction documents.
The Recovery Rating of ‘RR4’ reflects average recovery prospects in the event of a default based on country-specific factors.
The Long-Term IDR of ‘B-‘ of ENG is driven by its intrinsic credit strength as expressed by its Viability Rating (VR) of ‘b-‘. The VR reflects the constraint of Nigeria’s challenging operating environment, the bank’s very high impaired loan ratio, weak profitability and modest core capital buffers. This is balanced by company profile strengths as well as a solid funding profile and good foreign-currency liquidity, supported by ordinary support from Ecobank Group as part of its inter-affiliate placement programme (IAP).
For more details on the rating drivers and sensitivities for ENG, see “Fitch Rates Ecobank Nigeria Limited at ‘B-‘; Outlook Stable” dated 28th January 2021.
The rating of the notes is directly linked to ENG’s IDR.
Date of the relevant rating committee: 28 January 2021
Factors that could, individually or collectively, lead to positive rating action/upgrade:
The rating of the notes would be upgraded if ENG’s Long-Term IDR is upgraded, which is not our base case given the Stable Outlook.
Upside to ENG’s IDR is limited at present given the bank’s high impaired loan ratio and the ensuing pressure on other financial factors. Upside is contingent on a material improvement in the bank’s operating income and profitability, with performance metrics more akin to that of larger banks in Nigeria. This will depend on volume growth and a sustained improvement in asset quality.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
The rating of the notes would be downgraded if ENG’s Long-Term IDR is downgraded, which is not our base case given the Stable Outlook. The IDR could be downgraded in case of a sharp increase in the net impaired loans/Fitch core capital (FCC) ratio, closer to its recent peak of around 50%, or a drop in the FCC ratio to below 10%.