Fitch Ratings has affirmed a stable outlook on the Foreign Currency, Long Term Issuer Default Ratings of UBA Plc’s subsidiaries in Cameroon, Ghana and Senegal.
The entities, UBA Cameroon SA, UBA Ghana Limited and UBA Senegal SA, which are some of the flagship subsidiaries of the Nigerian-headquartered United Bank for Africa Plc are rated “B-”, as constrained by the weak operating environment within which the three subsidiaries operate.
According to a statement from UBA, Fitch’s note that the credit ratings and the stable outlook on UBA Cameroon, UBA Ghana and UBA Senegal are driven by the standalone financial strength of each of these subsidiaries, as reflected by their respective Viability Ratings.
In addition, the rating agency also notes potential support from their parent, UBA Plc, in the event that such is required. According to Fitch, the subsidiaries’ are profitable and their ability to build up capital internally is positive because it will support UBA Plc’s ambitious growth plans for the subsidiaries.
Assessing the loan portfolio of the subsidiaries, the agency notes that the three subsidiaries of UBA Plc lend to leading domestic corporate and public sector entities and such loans dominate the portfolio of UBA subsidiaries in each of the respective markets. Fitch specifically expects notable improvement in UBA Ghana’s asset quality in the near term, reflecting government’s efforts to address energy sector problem loans.
Discussing the capitalization of the subsidiaries, Fitch stated: “We view the banks’ capital buffers as modest, given the risks to which they are exposed. Reported regulatory capital ratios meet local Basel 1 requirements”. This varies across the banks, with UBA Ghana and UBA SEN reporting a higher tangible common equity-to-tangible assets ratio (18.3 per cent and 16.4 per cent respectively at end-September 2017)”.
Further discussing the capital ratios of UBA subsidiaries, the rating agency highlights: “Fitch core capital (FCC)-to-weighted risks ratios are particularly high at UBA Ghana (30 per cent) and lower at UBA SEN (15.1 per cent)”.
In concluding its assessment of UBA subsidiaries in Cameroon, Ghana and Senegal, Fitch noted that the three banks are an integral part of UBA Plc’s central and western African franchise and the subsidiaries are all small relative to the Group. UBA Ghana represents five per cent of consolidated group assets, followed by UBA Cameroon at 4.5 per cent and UBA Senegal at 2.5 per cent. In Fitch’s words; “this suggests that the potential cost to the group of providing support to the subsidiaries, if required, would not be too onerous”.
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