Fitch Ratings has affirmed
Fitch has withdrawn GTB's Support Rating and Support Rating Floor as they are no longer relevant to the agency's coverage following the publication of its updated Bank Rating Criteria on
Key Rating Drivers
Standalone Strength Drives Ratings: The Long-Term IDRs of GTCO and GTB are driven by their standalone creditworthiness, as expressed by their Viability Ratings (VRs) of 'b'. The VRs reflect the entities' exposure and sensitivity to the volatile Nigerian operating environment as well as the group's franchise strengths, solid profitability and strong capital buffers, which provide good loss-absorption capacity. The VRs are one notch below the 'b+' implied VRs, reflecting the Operating Environment/Sovereign Rating Constraint.
The National Ratings are driven by GTCO's and GTB's standalone strengths. They are at the higher end of the scale given GTCO's and GTB's strong business and financial profiles.
VRs Equalised with Group VR: GTCO is the bank holding company (holdco) for GTB. The VRs of GTCO and GTB are the same as the group VR. This is because Fitch believes the failure risk at the holdco and the bank is substantially the same as that of the whole group. GTCO's VR also captures low double leverage (end-2021: 103%) at the holdco and our expectation that any potential regulatory restrictions on GTB paying dividends or upstreaming liquidity to the holdco will be limited.
Downside to Operating Conditions: Rising global risks will weaken domestic operating conditions. Inflation (16.8% in
Leading Banking Franchise: GTCO's business profile is underpinned by GTB's top-tier banking franchise, and a well-established and diverse business model. GTB represented 99% of group assets at end-2021. The establishment of a holdco structure in 2021 enables GTCO to provide end-to-end financial services, enhancing its franchise.
High Oil Prices Help Asset Quality: GTCO's impaired (Stage 3 under IFRS 9) loan ratio improved to 6.0% at end-2021 (end-2020: 6.4%), reflecting the gradual easing of operating environment risks, write-offs (0.4% of average loans in 2021) and loan book growth (8.2%). The Stage 2 loans ratio also improved but remains high (end-2021: 14.3%; end-2020: 16.2%) and concentrated. High oil prices will support GTCO's asset quality in 2022, given the group's outsized exposure to the oil and gas sector (end-2021: 43%).
Solid Profitability: GTCO's profitability remains strong and at the higher end of peers but was weaker in 2021 (operating profit/risk-weighted assets: 7.2%; 2020: 8.3%) due to lower yields on the securities book (end-2021: 24% of total assets). The net interest margin contracted to 6.8% in 2021 (2020: 9%) despite loan growth. Profitability remains supported by consistently low loan impairment charges and good cost control (cost/income ratio: 43% in 2021).
Well Capitalised: Capitalisation is a relative strength with
Stable Funding Profile: The group is predominantly deposit-funded, which reflects its franchise strengths. Low-cost current and savings accounts formed a substantial 86% of total deposits at end-2021. Naira and foreign-currency liquidity is sufficient.
No Support: GTCO's GSR of 'No Support' reflects Fitch's view that sovereign support is unlikely to extend to a bank holding company, given its low systemic importance and a liability structure that could be more politically acceptable to be bailed in. Government support to commercial banks in
Rating Sensitivities
Factors that could, individually or collectively, lead to negative rating action/downgrade:
A sovereign downgrade would result in downgrades of GTCO and GTB's Long-Term IDRs and VRs.
The VR could also be downgraded in case of an increase in the impaired loans ratio significantly above 10% and aggressive loan growth or acquisitions that result in thin buffers over regulatory capital requirements or a sharp decline in the FCC ratio without clear prospects to restore capital.
A rise in double leverage sustainably above 120% or regulatory restrictions on GTB upstreaming dividends/other cashflows to the holdco would pressure GTCO's VR.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
An upgrade of GTCO and GTB's Long-Term IDRs and VRs would require a sovereign upgrade and a continued record of solid financial metrics.
VR ADJUSTMENTS
The Capitalisation and Leverage Score of 'b+' has been assigned below the 'bb' category implied score due to the following adjustment reason: Risk profile and business model (negative).
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 '
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 stated, the highest level of ESG credit relevance is a score of '3'. ESG issues are credit neutral or have only a minimal credit impact on GTCO, either due to their nature or the way in which they are being managed by GTCO. For more information on Fitch's ESG Relevance Scores, visit http://www.fitchratings.com/esg.
(C) 2022 Electronic News Publishing, source