Fitch Ratings has affirmed United Bank for Africa Plc's (UBA) long-term issuer default rating (IDR) at 'B-' with a positive outlook.

Fitch also affirmed the bank's national long-term rating at 'A+(nga)' with a stable outlook.

Fitch said UBA's IDRs are driven by its standalone creditworthiness, as expressed by its VR.

“The VR is constrained by Nigeria's Long-Term IDR of 'B-' due to the bank's high sovereign exposure relative to capital and the concentration of its operations in Nigeria. The 'b-' VR is one notch below the 'b' implied VR due to the operating environment/sovereign rating constraint”, the UK based firm pointed out.

It added that UBA's national long-term rating balances a strong franchise against leverage above that of higher-rated peers.

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%.

The UK based firm said the reforms are positive for Nigeria's creditworthiness but pose near-term macroeconomic challenges for the banking sector.

Strong Franchise

UBA represented 11% of domestic banking sector assets at end-2023 and has a large pan-African network, with subsidiaries in 20 countries outside of Nigeria contributing 33% of net income in 2023 and 47% of assets at end-2023.

Fitch said its ability to capitalise on business and trade flows and attract deposits across the continent is a competitive advantage relative to domestic peers and leads to stronger revenue diversification.

High Sovereign Exposure

Fitch continued that thesingle-obligor credit concentration is moderate, with the 20-largest loans representing 108% of UBA's Fitch Core Capital (FCC) at end-2023. Oil and gas exposure (end-2023: 19.5% of net loans) is lower than peers.

Also, Nigerian sovereign exposure through securities and the Central Bank of Nigeria's cash reserves is high relative to FCC (end-2023: over 250%), albeit lower than that at other large banks.

Sound Profitability Metrics

UBA also delivered sound profitability, as indicated by operating returns on average total assets averaging 2.8% over the past four years.

Operating profit increased to 5.1% of average total assets in 2023, primarily driven by foreign exchange revaluation gains that accompanied the devaluation of the naira, and profitability will benefit from higher interest rates in 2024.