GCR Ratings (“GCR”) has affirmed United Bank for Africa Plc’s long-term national and international scale ratings of AA+_(NG) and B respectively, with a Stable Outlook. At the same time, GCR has affirmed the national scale short-term rating of A1+_(NG).

Rating Rationale

The ratings of United Bank for Africa Plc (“UBA” or “the parent”) reflect the strengths and weaknesses of UBA Group (“the group”). The affirmation of UBA’s ratings reflect its sustained franchise strength as one of the top banking groups in Nigeria with strong geographic diversification and a robust financial profile.

UBA is a domestic systemically important bank in Nigeria, with a strong market share that places it among the country’s leading tier 1 banks. As of December 2021, the group’s share of the Nigerian banking sector’s total assets, deposits and loans stood at 13.7%, 15.8%, and 12.0% respectively. UBA’s franchise strength is solid, evidenced by its track record of providing banking services to a diversified client base of over 25 million customers. The group is headquartered in Nigeria with operations across 20 markets in Africa, the United Kingdom, USA, and more recently, the United Arab Emirates. The group has maintained a positive earnings trajectory through economic cycles with revenues driven by more stable sources.

Capital and leverage assessment is positive to the group’s ratings. UBA has demonstrated good capital management, with relatively high internal capital generation, comfortable dividend payout ratios, and moderate growth in risk weighted assets (“RWA”). Resultantly, the group’s capital adequacy ratio (“CAR”) has been maintained well above the 15% regulatory minimum over the last five years, which provides strong buffers for loss absorption and legroom for growth. GCR Core Capital ratio has been maintained within the intermediate range over the review period, with incremental improvements in the ratio, registering at 24.5% as of June 2022 (FY21: 23.6%; FY20: 21.8%). Forward looking, GCR Core Capital ratio is expected to hover within the 24-26% range, albeit sensitive to the operating environment issues.

Risk assessment is a positive ratings factor. Credit losses have been contained below 1.0% through the cycle, which places the group at the top end of the market. Also, there has been a sustained improvement in the non-performing loans (“NPL”) ratio. The NPL ratio reduced from 6.5% as at end-FY18 to 3.5% as of June 2022, driven by reclassifications, write-offs and recoveries. The group has also made progress in cleaning the loan book of the Ghana subsidiary, which has had a disproportionate contribution to NPLs. Sectorial diversification compares well to the market, with no single sector contributing up to 20% to gross loans, while counterparty party concentration, measured by the contribution of the top twenty loans to the loan book, has remained relatively stable at around 34.0%. Notwithstanding, GCR believes asset quality remains sensitive to the challenging operating environment, particularly risks emanating from foreign currency (“FCY”) exposures. FCY exposures for the parent stood at 33.8% as of June 2022 (FY21: 26.8%). There is also increased market risk, given the volatile interest rate environment.

Funding and liquidity assessment is a strong ratings positive. UBA’s funding structure is highly stable, supported by its strong customer base and funding relationships which highlight market confidence in the group. Behaviourally sticky customer deposits constitute the bulk of the funding base, contributing over 80% through the review period. The deposit book is well diversified and supportive of funding cost for the group. The top twenty depositors contributed a modest 14.4% and the relatively inexpensive current and savings accounts accounted for 88.7% of customer deposits as of December 2021 respectively. Liquidity is equally strong, with GCR liquid assets coverage of wholesale funding and customer deposits registering at relatively high levels of 10.6x and 57.2% respectively as of June 2022.

Outlook Statement

The Stable Outlook reflect GCR’s opinion that UBA will maintain its robust financial profile over the next 12-18 months, such that key ratios to the national scale ratings would remain resilient to the operating environment challenges. The international scale ratings would be impacted by operating environment conditions in the core markets, and this could be an area of downside risks given building pressure on households and corporates.

Rating Triggers

The ratings will be considered for an upgrade if GCR Core Capital ratio registers above 25% on a sustainable basis, while maintaining the sound credit losses, NPL ratio, and liquidity profile. Conversely, downward pressure on the ratings could arise should there be a marked decline in the capitalisation metrics and/or weakening of the group’s credit losses and NPL position. The international scale rating will be impacted by changes in the operating environment assessment.

Ratings History

United Bank for Africa Plc

Risk Score Summary

Salient Points of Accorded Rating

GCR affirms that a.) no part of the rating process was influenced by any other business activities of the credit rating agency; b.) the ratings were based solely on the merits of the rated entity, security or financial instrument being rated; and c.) such ratings were an independent evaluation of the risks and merits of the rated entity, security or financial instrument.

The credit ratings have been disclosed to United Bank for Africa Plc. The ratings above were solicited by, or on behalf of, United Bank for Africa Plc, and therefore, GCR has been compensated for the provision of the ratings.

United Bank for Africa Plc participated in the rating process via face-to-face management meetings, as well as other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible. The information received from United Bank for Africa Plc and other reliable third parties to accord the credit ratings included:

• The audited financial results as at 31 December 2021;
• Audited interim account as at June 2022;
• Four years of comparative audited numbers;
• Other related documents.