Fitch Ratings has downgraded
The IDRs remain on Rating Watch Evolving (RWE). A full list of rating actions is below.
The downgrade of the IDR reflects Fitch's view that the risk of non-payment to senior creditors, albeit not yet probable, has increased since its last rating review in
The downgrade of the VR to 'f' reflects that in Fitch's view, the group has failed as per the agency's definitions, as it will need extraordinary capital support to restore its viability.
Fitch will resolve the RWE on the IDRs once the core capital contribution from the prospective new shareholder is made and there is clarity on compliance with regulatory capital requirements, considering high capital encumbrance by impaired loans, credit concentration risk and exposure to weak sovereigns, or if Fitch perceives an increased risk of regulatory intervention or non-payment to senior creditors.
Key Rating Drivers
The RWE on the IDRs reflects the heightened probability of a downgrade should the acquisition not be approved or if capital compliance is not restored in a timely manner, which would increase the risk of regulatory intervention and default on senior obligations. It also reflects the heightened probability of an upgrade should the breach of the group's minimum capital requirements be addressed by the core capital contribution.
New Shareholder Pending Approval: The group has a presence in 12 west and central African countries, but has only moderate market shares in the larger economies in which it operates and a small balance sheet (end-2022:
High Credit Concentration Risk: Single-borrower credit concentration risk is high, with the largest 20 loans representing 363% of total equity at end-2022. The group has high exposure to high-risk sovereigns in west and central
Weak Asset Quality: The group's impaired loans (Stage 3 loans under IFRS 9) ratio (end-2022: 16%) is high due to distressed loan quality at certain subsidiaries and delays in resolving legacy exposures, partly influenced by strict write-off requirements. Specific loan loss allowance coverage of impaired loans (end-2022: 51%) is weak.
Modest Profitability: The group delivers modest profitability, with operating returns on risk-weighted assets (RWA) averaging just 1.6% between 2019 and 2022. Revenue diversification is supported by high fees and commissions and a broad geographical footprint, but profitability is constrained by high costs and high loan impairment charges (LICs). The group delivered a large net loss in 9M23 due to a sharp increase in LICs.
Prolonged Capital Requirements Breach:
Tight BHC Liquidity: Fitch believes the BHC is reliant on sourcing new external funding to meet some large debt maturities coming due before the acquisition by
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
The Long-Term IDR could also be downgraded following a material tightening of the BHC's liquidity, which could result from an acceleration of debt due to a covenant breach, or from an inability to raise funding in time to repay senior creditors.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
Upon receipt of extraordinary capital support,
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
The GSR is unlikely to be upgraded as we believe the government's propensity to support the BHC is unlikely to increase.
VR ADJUSTMENTS
The business profile score of 'ccc+' is assigned below the 'b' category implied score, due to the following adjustment reason: group benefits and risks (negative).
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
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
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