Fitch Ratings has downgraded Nigeria-based Coronation Merchant Bank Limited’s (CMB) Long-Term Issuer Default Rating (IDR) to ‘CC’ from ‘B-’ and its Viability Rating (VR) to ‘cc’ from ‘b-’.
Fitch has also downgraded CMB’s National Long-Term Rating to B+(nga) from BBB-(nga). The ratings have been removed from Rating Watch Negative (RWN).
According to its latest rating report, the downgrade of the VR reflects Fitch’s estimate of a significantly weakened capital position at the bank that, if not replenished by its planned rights issue or other measures, could lead to a material capital shortfall. It also reflects a weakening in the bank’s foreign-currency (FC) liquidity considering a diminished ability to refinance upcoming FC debt maturities in view of the estimated significant weakening in capitalisation.
The downgrade of the Long-Term IDR reflects Fitch’s view that a default on the bank’s senior obligations is probable in view of heightened FC liquidity risk. Fitch does not typically assign Outlooks to Long-Term IDRs in the ‘CCC’ category or below since the volatility of these ratings is very high.
The downgrade of the National Long-Term Rating reflects Fitch’s view that CMB’s creditworthiness has weakened relative to that of Nigerian peers. Fitch has assigned a Negative Outlook to the National Long-Term Rating, reflecting our expectation that its creditworthiness might weaken further relative to that of Nigerian peers.
It noted that an upgrade of the VR would require a material strengthening of the bank’s capital position and a reduction in FC liquidity risks. An upgrade of the Long-Term IDR would result from an improved capacity of the bank to honour its FC senior obligations.
The National Ratings will be upgraded if CMB’s local-currency creditworthiness strengthens relative to that of other issuers in Nigeria.
“The business profile score of ‘ccc’ is below the ‘b’ category implied score due to the following adjustment reason: business model (negative).
“The asset quality score of ‘b-’ is below the ‘bb’ category implied score due to the following adjustment reasons: concentrations (negative), non-loan exposures (negative),” the report stated.
In accordance with Fitch’s policies the Issuer appealed and provided additional information to Fitch that resulted in a rating action that is different than the original rating committee outcome.
According to Fitch, unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of ‘3’. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch’s ESG Relevance Scores are not inputs in the rating process; they are an observation of the materiality and relevance of ESG factors in the rating decision.
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