Fitch Affirms 3 UBA Subsidiaries At B-, Outlooks Stable
International rating agency, Fitch Ratings has affirmed the Long-Term Issuer Default Ratings (IDR) of United Bank for Africa Cameroon (UBA CAM), United Bank for Africa Senegal (UBA SEN) and United Bank for Africa Ghana (UBA Ghana) at ‘B-‘.
The Outlooks for the three subsidiaries of UBA Nigeria are Stable. According to Fitch, Long-Term IDRs of UBA Cam, UBA Sen and UBA Ghana are driven by their standalone financial strength, as defined by their ‘b-‘ Viability Ratings (VR), and are also underpinned by the rating agency’s view of potential support from UBA.
The VRs of the three subsidiaries are constrained by the weak environments in which they operate. The economies of the three countries are fairly underdeveloped, banking sectors operate with large single-name concentrations and limited capital buffers, in our view, and the prudential regulations for banks, though improving, fall short of international best practice guidelines.
Fitch rates Cameroon ‘B’/Stable and Ghana ‘B’/Negative. The VRs also consider the banks’ limited franchises. None of the banks are systemically important in their domestic markets. Single-name concentrations in both loans and deposits are very high across the three banks, exposing them to considerable event risks.
Currently, the banks’ top 20 exposures represent 70 per cent or higher of total exposures and sector concentrations can also be high. Oil-related loans represent 30 per cent of UBA CAM’s loan portfolio, for example. Performance indicators are strong at the banks, particularly in UBA Ghana, and their balance sheets are liquid.
This is credit-positive because it provides some protection against the considerable liquidity risks arising from notable asset and liability maturity gaps. The banks’ ability to build up capital internally is positive because this will support the parent’s ambitious growth plans for its subsidiaries.
Reported impaired loans represent below four per cent of gross loans across the banks, and impaired loan ratios are far better than the averages reported by their domestic peers (14 per cent in Cameroon, 16 per cent in Senegal and 19 per cent in Ghana).
“The three subsidiaries lend to leading domestic corporate and public sector entities and these loans dominate the portfolios, representing around 70- 90 per cent of total loans. Reported losses in these portfolios are small but, in our view, published impairment figures may not reflect the full extent of the risks” Fitch stated in its ratings report.
