International Ratings agency, Fitch, has revised the outlook of two Nigerian banks operating in Ghana to negative, from stable but affirmed the Long-Term International Depository Receipt (IDRs) at ‘B’ ratings.

The two Nigerian banks [names withheld] were the 1st and 3rd to begin operations in Ghana about 15 years ago.

According to Fitch, the rating actions follow the revision of the outlook of Ghana’s Long-Term IDR to negative, from stable in June 2021.

This is probably because the two banks are exposed so much to the country’s rising debt which hit ¢332.4 billion in May 2021.

IDR is a negotiable certificate purchased by investors as an alternative to the direct purchase of foreign stocks or debt instruments.

Fitch said the revision of the outlooks of the two banks IDRs reflect its view that a sovereign downgrade would likely result in a downgrade of the banks Long-Term IDRs.

“A sovereign downgrade would result in a downgrade of the banks’ Long-Term IDRs and Viability Ratings (VR), given that the banks do not meet Fitch’s criteria to be rated above the sovereign.”

Also, “stronger-than-expected loan or balance-sheet growth or material deterioration in asset quality that exerts significant downward pressure on capitalisation and leverage may result in a VR downgrade if not compensated by new equity injections. This could be indicated by a sustained decline in the tangible common equity/tangible assets ratio to around 12%.

Furthermore, Fitch said it consider it unlikely that the banks would remain solvent in case of a sovereign default due to the concentration of their operations within Ghana, particularly high exposure to government securities including bonds.

It added that a sovereign downgrade may have a negative impact on the banks’ asset quality, earnings and capitalisation.

 For the two banks to be upgraded, the international ratings agency said “an upgrade would require a sovereign upgrade and an improvement in the operating environment. Fitch does not consider this likely given the Negative Outlook on Ghana’s Long-Term IDRs.”

Meanwhile, Fitch has revised the outlook of Access Bank Plc to stable, from negative.

According to the international ratings agency, its decision reflects the view that risks to Access Bank’s credit profile have retreated since the onset of the Covid-19 crisis, adding, this is captured in the bank’s resilient financial metrics.

“The Outlook revision reflects Fitch’s view that risks to Access’s credit profile have receded since the onset of the Covid-19 crisis, as reflected in the bank’s resilient financial metrics in 2020 and 1Q21 and our expectation that these trends will continue. Our action also reflects our view that the bank has sufficient headroom at the current rating level to absorb risks to its asset quality, profitability and capital under our base case, resulting from operating environment pressures.”