The rating expires on 30 June 2020.
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 macroeconomy, 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%, Agusto & Co. notes that as at 31 December 2018, the banking industry’s loan to deposit ratio stood at circa 63%. When we back out loans funded by borrowings from multilateral financial institutions, the Central Bank 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%. 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 3 loans accounting for over 10% of gross loans & advances as at 31 December 2018, alongside a lingering macroeconomic lull, asset creation strategies of banks are expected to be conservative in the short-term.
