Nigeria’s premier credit rating agency, Agusto & Co. Limited, known for its credible presence in credit analysis globally, has scored United Bank for Africa (UBA) Plc with a rating of “Aa-”.
The rating assigned to UBA, according to a statement, reflects the bank’s performance as underpinned by its good liability generation strategy and upheld by a strong brand franchise.
Contributing to the score, the rating firm said, was the bank’s compilation of good liquidity profile, satisfactory asset quality given the operating terrain, as well as good capitalization for current business risks.
UBA’s rating it is indicated would have been higher if not for the constraints caused by weaknesses in the overall macroeconomy, a comparably lower net interest spread and a high cost to income ratio, limiting competitive profitability levels vis à vis Tier 1 banking peers.
With the Central Bank of Nigeria’s recent policy which requires deposit money banks to maintain a loan-to- deposit ratio (LDR) of at least 60 percent, Agusto & Co. stated that as at December 31, 2018, the banking industry’s loan to deposit ratio stood at almost 63 percent.
Further examining this ratio by the bank shows that most Tier 1 lenders recorded LDRs below the newly introduced floor of 60 percent. The apex bank’s target is to compel banks to increase lending to the private sector, particularly Small and Medium Enterprises (SMEs), retail, mortgage and consumer lending with a view to stimulating economic growth through increased lending to the real sector.
However, with Stage 3 loans accounting for over 10 percent of gross loans & advances recorded as at December 31, 2018, alongside a lingering macroeconomic lull, asset creation strategies of banks are expected to be conservative in the short-term.
