Fitch Ratings has affirmed Guaranty Trust Holding Company Plc's (GTCO) and its main operating subsidiary Guaranty Trust Bank Limited's (GTB) Long-Term Issuer Default Ratings (IDRs) at 'B-' with Positive Outlooks.

Fitch also affirmed the issuers' National Long-Term Ratings at 'AA (nga)' with Stable Outlooks.

According to the UK-based firm, the issuers' IDRs are driven by their standalone creditworthiness, as expressed by their Viability Ratings (VRs). The VRs are constrained by Nigeria's Long-Term IDRs of 'B-' due to the issuers' high sovereign exposure relative to capital and the concentration of their operations in Nigeria.

The 'b-' VRs are one notch below their 'b' implied VRs, reflecting the operating environment/sovereign rating constraint.

Fitch added the issuers' National Long-Term Ratings are higher than those of other Nigerian domestic systemically important banks (D-SIBs) due to stronger profitability and capitalisation.

Challenging Environment

 President Tinubu has pursued key reforms since he assumed office in May 2023, reducing the fuel subsidy and overhauling monetary policy, including by allowing the naira to devalue by over 65%. Fitch said the reforms are positive for Nigeria's creditworthiness but pose near-term macro-economic challenges for the banking sector.

Sizeable Domestic Franchise: GTCO is Nigeria's fifth-largest banking group, representing 6% of banking system assets at end-2023, but benefits from having the banking sector's lowest cost of funding.

Revenue diversification is high, with non-interest income representing 63% of operating income in the first quarter of 2024 (2023: 59%).

High Sovereign Exposure: 

The single-obligor credit concentration is moderate, with the 20 largest loans representing 115% of Fitch Core Capital (FCC) at end-1Q24. Oil and gas exposure (end-2023: 42% of net loans) is very high. It stated that Nigeria sovereign exposure through securities and cash reserves at the Central Bank of Nigeria (CBN) is high relative to FCC (end-2023: over 200%).

Sound Profitability Metrics

Fitch explained thatGTCO is the most profitable of all Nigerian banks, with operating returns averaging 8.6% of risk-weighted assets (RWAs) over the past four years.

Profitability is also supported by low cost of funding, high non-interest income and typically low loan impairment charges (LICs).

The profitability of the bank increased significantly in 2023, primarily driven by large foreign-exchange (FX) revaluation gains stemming from GTCO's net long foreign currency (FC) positions after the naira devaluation, and will benefit from rising interest rates in 2024.