Agusto assigns ‘Aa-’ rating to UBA

…rating expires on June 30, 2020

Agusto & Co. Limited has just assigned an “Aa-” rating to United Bank for Africa Plc. The rating assigned to United Bank for Africa Plc reflects the bank’s performance as underpinned by its good liability generation strategy and upheld by a strong brand franchise, the rating agency said.

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, said Agusto whose strong

credibility presence and ratings are globally accepted in Nigeria, and across the globe.

“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”, said Agusto which is Nigeria’s first credit Rating Agency and a pan African leader in credit reports.

With the Central Bank of Nigeria’s recent regulation requiring deposit money banks to maintain a loanto- deposit ratio (LDR) of at least 60percent, Agusto & Co. notes that as at December 31, 2018, the banking industry’s loan to deposit ratio stood at circa 63percent.

“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 60percent. 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 10prcent 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 shortterm”, Agusto stated.