S&P Global, a renowned global rating agency, has affirmed its long- and short-term issuer credit ratings on Ecobank Nigeria at ‘B-/B.’ Despite the challenging economic landscape in Nigeria, the ratings indicate that the bank possesses the capability to fulfill its financial commitments.

However, the agency expressed concerns about potential risks associated with the depreciation of the naira, emphasizing that further devaluation could impact Ecobank Nigeria’s regulatory capital adequacy ratio (CAR), given its slender capital buffers. Consequently, S&P revised the outlook from stable to negative while maintaining the ‘B-/B’ ratings.

In a recent report, S&P observed that Nigerian banks, including Ecobank Nigeria, are grappling with foreign exchange shortages and a weakening national currency. The persistent scarcity of foreign exchange is expected to continue affecting key sectors of the economy throughout 2024, despite the efforts of the Central Bank of Nigeria (CBN) to address the foreign exchange backlog.

S&P highlighted the elevated level of foreign currency loans, particularly at 65%, compared to the estimated 55% for the sector, posing additional credit risks due to the scarcity of U.S. dollars. The report anticipated adjustments by Ecobank Nigeria in collateral levels for letters of credit, reflecting the impact of the weaker naira. The bank’s provisions increased by 166% in the third quarter of 2023 compared to the same period in 2022, with a cost of risk ratio of 1.8%.

While S&P expects the bank to meet its capital requirements, it warns that a significant naira depreciation could undermine regulatory capital adequacy. The agency acknowledged the managed-float status of the naira but emphasized that the exchange rate, ranging from N850-N950 per $1, aligns more closely with market demand, posing challenges due to weak supply fundamentals.

S&P clarified that the ‘B-/B’ ratings for Ecobank Nigeria reflect its integral role within the Ecobank group, deriving its rating from the ‘b’ group credit profile of the Ecobank group.

Looking ahead, S&P indicated a potential revision of the outlook to stable if Ecobank Nigeria’s capitalization improves and regulatory capital buffers increase. Conversely, a negative rating action could occur if the bank breaches its minimum CAR due to higher-than-forecasted credit losses, hindrance in U.S. dollar-denominated contingent funding, or if there are negative developments affecting Nigeria’s rating.