Nigeria’s first credit rating agency, Agusto & Co. Limited, has assigned an “Aa-” rating to United Bank for Africa Plc.
A statement from the company said: “The rating assigned to United Bank for Africa Plc (“UBA”or “the Bank”) reflects the bank’s performance as underpinned by its good liability generation strategy and upheld by a strong brand franchise.
“This is in addition to a good liquidity profile, satisfactory asset quality given the operating terrain, as well as good capitalisation for current business risks.
“UBA’s rating is, however, constrained by weaknesses in the overall macro economy, a comparably lower net interest spread and a high cost to income ratio, limiting competitive profitability levels vis-à-vis Tier 1 banking peers.
“With the Central Bank of Nigeria’s recent regulation requiring deposit money banks to maintain a loan-to-deposit ratio (LDR) of at least 60 percent, Agusto & Co. notes that as at December 31, 2018, the banking industry’s loan to deposit ratio stood at circa 63 percent. When we back out loans funded by borrowings from multilateral financial institutions, the CBN and Bank of Industry, this ratio would be significantly lower.
“Further examining this ratio by bank shows that most Tier 1 banks recorded LDRs below the newly introduced floor of 60 percent. The CBN’s target is to compel banks to increase lending to the private sector, particularly SMEs, retail, mortgage and consumer lending with a view to stimulating economic growth through increased lending to the real sector.
“However, with Stage three loans accounting for over 10 percent of gross loans and advances as at December 31, 2018, alongside a lingering macroeconomic lull, asset creation strategies of banks are expected to be conservative in the short-term.”