US credit ratings agency Fitch has placed the creditworthiness of Ecobank Transnational Incorporated (ETI) and its local unit Ecobank Nigeria on watch for a potential downgrade.
The two entities have been projected to take a hit in their viability ratings (VRs) and long-term issuer default ratings (IDRs) on the heels of the move to allow the naira to weaken by about 40 per cent in June.
Nigeria is the ETI’s largest market, though it has presence in 35 sub-Saharan African countries.
Fitch noted in a Monday commentary that putting the two organisations’ VR of ‘b-’ and IDR of ‘B-‘ on rating watch negative highlights the risk of the entities falling short of their minimum capital requirements following “the direct effect of the devaluation.”
Ecobank Nigeria is particularly susceptible on account of the elevated uncertainty around the capital from its huge impaired loans that are denominated in foreign currency.
The lender’s credit quality sharply deteriorated in the wake of weakening the naira, Fitch said, setting the stage for a bigger allowance for impairment and raising the odds that the bank’s capital adequacy ratio will be further strained.
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“Fitch has also placed ENG’s Shareholder Support Rating (SSR) of ‘ccc+’ on RWN, reflecting the potential for ETI’s ability to provide shareholder support, if required, to be weakened following the devaluation,” the document said.
“Fitch expects to resolve the RWN within the next six months when exchange-rate volatility may recede, the impact on regulatory capital ratios and common equity double leverage is clear, and the scale of the second-order economic effects of the devaluation on loan quality becomes evident,” it added.
The naira plunged in value by 63 per cent to the US dollar in the official market last month following monetary reforms by President Bola Tinubu.
