Fitch Ratings has placed Union Bank of Nigeria PLC’s (UBN) Issuer Default Ratings (IDRs), Viability Rating (VR) and National Ratings on Rating Watch Negative (RWN) after the Central Bank of Nigeria (CBN) intervention.
However, Fitch pointed out that UBN’s Government Support Rating of ‘no support’ is not affected by this rating action.
The ratings agency in a report on Monday said the RWN follows the Central Bank of Nigeria’s (CBN) announcement on 10 January that it had dissolved the board and management of three banks, including UBN, as a result of regulatory non-compliance, corporate governance failure, disregarding the conditions under which banking licenses were granted and involvement in activities that pose a threat to financial stability, among other infractions.
The CBN has since appointed new executives, including chief executive officers, to oversee the affairs of the banks.
According to the agency, the RWN reflects the uncertainty surrounding the background to the CBN’s intervention, the potential for further regulatory actions and the negative implications for UBN’s standalone credit profile, particularly relating to corporate governance risks and liquidity pressures arising from potential funding instability.
Fitch expects to resolve the RWN within six months once there is more certainty regarding the CBN’s intervention and the implications for UBN’s standalone credit profile.
Explaining the ratings sensitivities, Fitch stated that a downgrade (and potential resolution of the RWN) could result from further regulatory intervention, e.g. imposition of restrictive measures on UBN’s activities, fines or other regulatory findings (such as weaker asset quality than initially reported by UBN), that would lead to large losses and erosion of the bank’s capital.
The downgrade could also result from UBN’s funding instability, due to a deposit run or where additional liquidity sources become unavailable to the bank.
On the other hand, the ratings could be affirmed and removed from RWN if Union Bank continues to operate as normal under the new management in the medium term and there are no additional regulatory interventions or financial profile implications from the management replacement.
However, the Bank’s Environmental Social and Corporate Governance ESG Relevance Score for Governance Structure was revised to ‘4’ from ‘3’ due to the dissolution of the board and management by the CBN.
This has a negative impact on the credit profile, and is relevant to the ratings in conjunction with other factors.
The highest level of ESG credit relevance is a score of ‘3’, and a score of ‘3’ 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.
READ ALSO FROM NIGERIAN TRIBUNE
