By Obinna Chima
Fitch Ratings has affirmed the long-term Issuer Default Ratings (IDR) of United Bank for Africa (UBA) Cameroon, UBA Senegal and UBA Ghana at ‘B-‘.
The outlooks for the financial institutions were also said to be stable. The three banks are subsidiaries of Nigeria’s UBA. UBA controls 100 per cent of UBA CAM, 86 per cent of UBA SEN and 91 per cent of UBA Ghana.
According to a statement by Fitch at the weekend, the long-term IDRs of UBA CAM, UBA SEN and UBA Ghana were driven by their standalone financial strength, as defined by their ‘b-‘ Viability Ratings (VR), and were also underpinned by Fitch’s view of potential support from UBA.
“The VRs of the three subsidiaries are constrained by the weak environments in which they operate. The economies of the three countries are fairly underdeveloped, banking sectors operate with large single-name concentrations and limited capital buffers, in our view, and the prudential regulations for banks, though improving, fall short of international best practice guidelines.
“Fitch rates Cameroon ‘B’/Stable and Ghana ‘B’/Negative. The VRs also consider the banks’ limited franchises. None of the banks are systemically important in their domestic markets. Single-name concentrations in both loans and deposits are very high across the three banks, exposing them to considerable event risks.
“Currently, the banks’ top 20 exposures represent 70 per cent or higher of total exposures and sector concentrations can also be high. Oil-related loans represent 30 per cent of UBA Cameroun’s loan portfolio, for example,” it added.
The report showed that performance indicators were strong at the banks, particularly in UBA Ghana, adding that they have liquid balance sheets.
Fitch explained: “This is credit-positive because it provides some protection against the considerable liquidity risks arising from notable asset and liability maturity gaps. The banks’ ability to build up capital internally is positive because this will support the parent’s ambitious growth plans for its subsidiaries.
“Reported impaired loans represent below four per cent of gross loans across the banks, and impaired loan ratios are far better than the averages reported by their domestic peers (14% in Cameroon, 16% in Senegal and 19% Ghana).
“This is explained by the relatively unseasoned loan portfolios (UBA Ghana, UBA Cameroun and UBA Senegal were respectively established in 2004, 2007 and 2009) and by the relatively higher-quality customers they target.”
The three subsidiaries lend to leading domestic corporate and public sector entities and these loans dominate the portfolios, representing around 70 per cent – 90 per cent of total loans.