Kia Reports Global Sales of 253,592 Units in June, Up 20.2%

Esan Bolaji
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Kia Reports Global Sales of 253,592 Units in June, Up 20.2%

Kia Corporation recorded total global sales of 253,592 units in June 2021, a 20.2 percent increase compared to the same month last year. The Sportage and Seltos SUV models led Kia’s global sales in June, selling 30,906 and 24,680 units respectively. The K3 compact sedan closely followed by selling 24,639 units.

June 2021 global sales highlights

  • June global sales at 253,592 units, up 20.2% y/y
  • Sales in Korea at 49,280 units, down 17.9% y/y
  • Sales outside of Korea rose to 204,312 units, up 35.4% y/y
  • Kia to create sales momentum through new models, including the Kia EV6 battery electric vehicle and all-new Sportage
kia Telluride Names a Car and Driver 10Best for 2021
2020 Telluride

Sales outside of Korea

Sales outside of Korea rose 35.4 percent from a year earlier to 204,312 units, steered by the company’s SUV models, including the Sportage and Seltos SUV. Sedan models such as the K3 compact sedan and Rio sub-compact sedan also contributed to the sales increase.

Auto markets around the globe are experiencing recovery from the slowdown in sales due to COVID-19, leading to a gradual rise in sales.

Korea sales

Kia recorded sales of 49,280 units in Korea, a 17.9 percent decrease from June 2020. The Carnival minivan and Sorento SUV led the company’s sales in its home market.

Kia will continue to focus on creating sales momentum and enhancing profitability through new models, such as the EV6 battery electric vehicle and all-new Sportage SUV. The Sportage SUV is due for a global market launch later this year.

June-21 June-20 YoY change May-21 MoM change 2021 YTD 2020 YTD YTD change
Korea sales 49,280 60,005 -17.9% 47,901 2.9% 278,384 278,287 0.0%
Overseas sales 204,312 150,890 35.4% 198,867 2.7% 1,165,253 886,448 31.5%
Global sales 253,592 210,895 20.2% 246,768 2.8% 1,443,637 1,164,735 23.9%

CHI Limited Deepens Investments in Backward Integration Programme

Esan Bolaji
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CHI Limited Deepens Investments in Backward Integration Programme

As part of its commitment to advance the Central Bank of Nigeria’s backward integration programme to enhance capacity and boost local milk production, CHI Limited has made substantial progress in massive infrastructural development, co-ordination of local farmers/herders and procurement of 300 hybrid cows (heifers) for cross breeding at the Bobi Grazing Reserve, a pilot grazing reserve in Mariga Local Government, Niger State.

To this end, CHI Limited has virtually concluded (90%) of the feeder road construction leading to its site at the reserve and rehabilitated/reconstructed the dam with a size of 250m by 1200m by 4m with an average depth of 12,000,000 cubic meters of water. The Central Bank of Nigeria fact-finding committee adjudged this dam as the best in the grazing reserve.

CHI Limited Backward Integration
CHI Limited BOBI Grazing | Brand Spur Nigeria

The company has cleared and planted Napier grass, as well as sorghum on 300 hectares using irrigation. The identification, registration and incorporation of over two (200) hundred participating and settled herders and their local cows into clusters have attained an advanced stage. In the interim, one hundred (100) pastoralists have been identified through biometric capture and are primed for the milk collection scheme.

An additional contract for the second phase of clearing 500 hectares and ploughing/planting of 100 additional hectares of land in the reserve has been signed, with arrangements made to procure an additional two (200) hundred hybrid cows to make up for the five (500) initial threshed for cross breeding through Artificial Insemination (AI) with local cows to boost milk production.

To improve human capacity skills at the reserve, CHI Limited is partnering with Sahel Group (ALDDN), on the future training of local farmers in Bobi and mapping of local dairy production in Ogun State as an additional initiative to bolster milk production opportunities. In the short term, the company is also finalizing arrangements with the management of Maizube Farms to process milk at their plant.

CHI Limited Managing Director, Mr. Deepanjan Roy, stated that the company’s massive investment in infrastructure and human capacity development at the Bobi Grazing Reserve will ensure a boost in local milk production. It will also enable dairy farmers to operate with best practices, improve their quality of life as well as that of their livestock.

“We want to reiterate our commitment to strengthen the backwards integration policy to boost dairy production in the country with the massive investment in infrastructural and human capacity development at the Bobi Grazing Reserve. In partnership with the Niger state Governoment, we will be driving the project as a model for backward integration on a commercial scale,” he said.

FAAC disbursements down by 1.8% in June to N605.69Bn

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FAAC disbursements down by 1.8% in June to N605.69Bn

The total amount shared to the three tiers of government fell to N605.69bn from N616.88bn in May. This was partly due to a decline in statutory revenue by 13.9% to N428.20bn from N497.39bn. The fall in FAAC allocation can also be attributed to continued subsidy payments.

The NNPC had earlier hinted at zero remittance to the monthly statutory account as it maintained its N120bn monthly payments to subsidize petrol. With oil prices at $75pb, subsidy payments are estimated to have increased to N500bn monthly.

In addition, Company Income Tax (CIT), oil & gas royalties, and import and excise duty also decreased in the month of May.

However, VAT revenue rose by 2.49% to N181.1bn from N176.7bn. FAAC disbursements are likely to pick up in the coming months on higher oil receipts and exchange rate gains, although the increase may be capped by the NNPC’s low to nil remittance. Higher statutory allocations will support state governments in meeting their internal obligations like salary payments.

Many state governments such as Ekiti state have reverted to the old minimum wage of N18,000 minimum and cut executive salaries by 25% due to financial constraints

Verdant Capital successfully raises USD7.9M for Zeepay

Esan Bolaji
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Verdant Capital successfully raises USD7.9M for Zeepay

July 6, 2021 – Verdant Capital has successfully completed its fourth major fintech transaction in the last 12 months.  The debt and equity raise for leading challenger fintech, Zeepay, head-quartered in Ghana, follows a USD 20 million equity and debt capital raise for Tugende, an East African technology-enabled asset financing business, a USD 11 million debt capital raise for Retail Capital a technology-driven SME-lender in South Africa, and a USD 13 million equity and debt raise for Planet42 an innovative car subscription business in South Africa.

Zeepay is a pioneer of digital remittances from the diaspora to mobile wallets, bank accounts and visa cards across 20 markets in Africa, where it either operates a mobile money business or has approved partnerships.

Verdant Capital

The business is successfully transitioning into integrated omni-channel digital payments and value-added financial services providers operating across the continent. Verdant Capital positioned Zeepay’s USD 7.9 million equity and debt raise as Series A.0.

Zeepay, prior to the fundraising, had efficiently deployed a total of about USD 450,000 since its go-to-market in May 2016 to achieve a cumulative average growth rate of about 146 percent in the following five years.  Zeepay has achieved this growth rate while maintaining operating profitability and reinvesting the profits.

In Verdant Capital’s view, Zeepay has the potential to transform how Africans implement payments across borders and domestically; and how these payments are integrated into value-added services such as credit and insurance.

Zeepay has built a formidable market position in its anchor market of Ghana, which it is now replicating in synergistic markets across the continent. Verdant Capital expects this strategy to continue driving rapid revenue growth, profitability and financial inclusion.

The lead investor arranged by Verdant Capital was Investisseurs & Partenaires (I&P). I&P is an impact investing group with over USD 250 million in assets under management.

Other investors in the round included the holding company of the Managing Director, Andrew Takyi-Appiah and his wife Zoe Takyi-Appiah, GOODsoil VC, Absa Ghana and FNB Ghana. Verdant Capital is a financial advisor to Zeepay.  The lawyers for Zeepay were JLD & MB.

Opera launches in-browser chat service for Opera Mini users, in Nigeria

Esan Bolaji
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Opera launches in-browser chat service for Opera Mini users, in Nigeria

Opera launches Hype, an in-browser chat service for Opera Mini users, in Nigeria

Hype is the first African-inspired chat service built into a mobile browser, allowing users to easily set up an account and start chatting with secure end-to-end encryption

Opera Mini hype

July 6, 2021 – Today, Opera has announced the launch of its dedicated chat service Hype, built into the Opera Mini mobile web browser, in Nigeria. With the introduction of Hype, Opera is redefining the concept of mobile browsers, providing users with a personalized, engaging browsing experience that enables seamless chatting, surfing and sharing – without compromising speed or driving increased data consumption.

Opera Mini hype

Browsing and chatting, all in one app

Hype is the first African-inspired chat service built into a mobile browser, allowing users to easily set up an account and start chatting with secure end-to-end encryption right away. This means users can now browse the web, chat with friends, and share self-created memes, stickers and GIFs with other Hype users, all in one app.

Opera Mini hype

Hype was built because younger generations of internet users are expecting more social connectivity from the apps they use on their devices. With this integration, Opera Mini becomes the first major browser in the world to integrate a social component that keeps users connected to the ones that matter the most. This unique and innovative blend is something that no other mobile browser in the Google Play Store offers.

Opera Mini hype

“Hype is an original instant messaging service from Opera, designed for the new generation of African internet users to elevate the traditional browsing experience and make it more engaging. With Opera Mini and a Hype account, Nigerians can enjoy a browsing and chatting ecosystem tailored to their needs,” said Jørgen Arnesen, EVP Mobile Browsers at Opera. “Hype bridges cultures from Sub-Saharan Africa with mobile technology, as the world’s first African-inspired chat service.”

Hype was first launched in 2021 in Kenya as a pilot market, and it is already showing impressive results with more than 400k activations and more than 10k invites to join Hype per day. This launch was one facet of Opera’s emphasis on investing and growing its digital ecosystem in Africa, with the goal of bringing more people online.

Free chatting with Hype up to 1.5GB per month

To help familiarize people with the concept of an easy-to-use chatting service built into a browser and as a response to the high cost of data in Nigeria, Opera has partnered with the leading carriers in Nigeria to enable free daily browsing and chatting for those using the service.

Users of Opera Mini and Airtel, MTN and Globacom can activate the free data anytime by opening the Feedback Bot in Hype, sending “Unlock my free data” in chat, then clicking the link in the reply message. The free mobile data will be activated when the page is loaded.

Key features

Opera is constantly working on improving the chatting experience. Hype users can now use link previews, GIF support, and the unique built-in meme creator to make chatting with friends even more personal and fun. Moreover, users can join interest-based channels Hype Clubs to chat with those who are on the same wavelength.

Hype Clubs

Hype Clubs are organized into topic-based channels where users can easily chat about their mutual interests. If a user is into something, there is a good chance they can find a Club for it. There they can share opinions with others, or even create their own Club and gather interested people together.

Chatting with others who have the same interests is a great way to find new friends and become a part of an interest-based community. With Hype Clubs, fans of sports, gaming, the arts, and even software development are now able to find a community they can truly belong to.

The built-in meme creator

Memes are an essential part of internet culture. People not only use existing memes but also wish to create and spread their own. Now, Opera has introduced the first meme creator built directly into a browser’s messenger!

Users can choose memes in Hype chat, then edit them by changing the text and experimenting with fonts, colours and placement – more easily than ever. This comes in handy as users no longer need to copy links from websites and switch between apps to share the memes they want.

GIF support in chat

Hype supports GIFs and makes choosing them super simple with its search capabilities and scrollable GIF grid. To help users choose the one they want, GIF previews and full-screen views are also available.

Link previews

It’s always good to know what’s hiding behind a link we’ve sent or received, which is why Hype comes with the link preview feature. With it, a snapshot preview, website header and description will automatically appear in chat. This function is also available in encrypted chats and on metered networks.

Share online content in a snap

Today, new generations are relying on formats like memes and stickers to express themselves. To make this easier, Hype includes WebSnap, a feature already known from the Opera desktop browser, allowing users to take snapshots from the web.

Once a websnap is captured, users can edit it by adding colours, text and emojis, making it fun and entertaining before sharing it with others. WebSnap also allows users to smoothly share the link of the original website from which they took their snaps, so users no longer need to switch between apps to share the content they want.

First African inspired chat service in the world

Hype is the first African inspired chat service built into a mobile browser. It offers its users a series of stickers created by African artists such as Okolo Chibuike and Mayowa Alabi from Nigeria.

The sticker packs have been designed to include everyday expressions currently popular in Nigeria. This unique offer from Hype stands out from other chat services and gives Nigerians new ways of expressing themselves more accurately when using chat apps.

Hype account setup

To activate the Hype account, users should have an Opera Mini application. Users set up a Hype account by tapping the Hype logo at the bottom of the Opera Mini browser, or through the O menu.

Next they choose their name and take a selfie or upload a personalised photo, which will become their profile picture and will be visible for other Hype users. Once this process is completed, users sync Hype with their phone contact list to start chatting with others.

Life Lager Earns A Status Symbol with Mmanya Oganiru title

Esan Bolaji
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Life Lager Earns A Status Symbol with Mmanya Oganiru title

Dong! Dong!! Dong!!! That was the sound of the gong that signalled the start of the title conferment ceremony held recently in Anambra state for Life Continental Lager Beer.

Honoured with the title, ‘Mmanya Oganiru of Igbo land’ meaning King of beer in Igboland, the kolanut breaking session was accompanied by the sound of the horns. The sound wafted through the air that blew against the flaps of branded Life beer banners outside the venue.

Life Lager Life Lager

At the Nri Townhall, Anambra, the guests were held to the spectacular sight of traditional dancers as they pranced around the space where they performed. Famed for being the ancestral home of the Igbos, Nri has always been a melting pot of the Igbo tribes. In the spirit of camaraderie sealed with those clashing hand-crafted hand fans, the city paid homage to Life Lager which is at the centre of progress in Igboland.

Life Lager Life Lager

Full beam headlights came into view as vehicles marked with the Life Lager beer logo moved in a coordinated procession around the streets of Anambra to pay courtesy visits to select bars as well as royal palaces. The sight of red caps was everywhere- a usual scenario at Igbo ceremonies.

Life Lager

The beer of progress, Life Lager made its entry into the beer culture with the establishment of a brewery in Onitsha as far back as 1981. The journey has been adventurous and progressive with many small businesses catering to the brand’s needs. For instance, there are distributors, marketers, bar owners, bar attendants, and a wide range of other workers who have directly and indirectly benefited from the supply chain.

For that contribution to the livelihood of many in that region, many of the eyewitnesses at the conferment ceremony and tours commended the effort of the brand in corporate social responsibility initiatives.

Aisha Aniekwe, the Senior Brand Manager, Life Continental Lager Beer expressed her excitement at the conferment saying,

“This is a valuable gift to our brand that we will treasure for a lifetime. We understand that to whom much is given, much is expected. For this reason, the Life Lager beer brand will forge ahead with more initiatives that can drive progress into the South-eastern region.”

The Marketing Director, Life Continental Lager Beer shared this same sentiment in his remarks at the conferment ceremony.

“We are delighted at this rare honour bestowed on the Life Continental Lager Beer- a brand that has made a name for itself for promoting the values of unity, integrity, and progress. The Mmanya Oganiru title is one that is laden with a renewed sense of responsibility for the brand in the region as we chart the path to future progress,”

Heineken Acquires 40,555,281 Units of Nigerian Breweries Shares

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Heineken Acquires 40,555,281 Units of Nigerian Breweries Shares

Heineken Brouwerijen B.V, the majority shareholder in Nigerian Breweries Plc has further raised its equity stake in the brewer with the purchase of additional 40,555,281 units at N47.75 per share (Reference Share Price, being the 10-day average closing share price of the Company’s traded shares starting on the 11th of March, 2021).

Details of the transaction done on 8th June 2021 in Lagos via The Nigerian Exchange Limited by the foreign substantial shareholder show that it bought:

Heineken Nigerian Brewerie

Heineken Nigerian Brewerie

Providus Bank Gets GCR’s “BB” Rating With Stable Outlook

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Providus Bank Gets GCR’s “BB” Rating With Stable Outlook

05 July 2021 – GCR Ratings (GCR) has affirmed tier 3 bank in Nigeria, Providus Bank Plc’s, national scale long and short-term issuer ratings of BB(NG) and B(NG) respectively; with a Stable Outlook.

Rating Rationale

The ratings accorded to Providus Bank Plc reflect its limited competitive position, relatively stable funding structure, intermediate capitalisation, adequate liquidity, and moderate risk position.

Providus Bank ranks among the tier 3 banks in Nigeria, having a limited track record of about five years in the local commercial banking space. The bank controls a moderate market share of 0.8% and 0.9% in terms of the industry total assets and deposits respectively at FY20.

providus bank

Furthermore, Providus Bank’s competitive position is constrained by its evolving brand franchise, short track record, and limited local geographical diversification (being a regional licenced bank).

Given the small customer base, concentration risk is high, with the twenty largest obligors and depositors constituting 46.1% and 51.9% of gross loans and deposits respectively at FY20. Though the bank operates with a regional licence and has only 10 branches, management confirmed to be serving customers across the country through aggregators, who are into agency banking, fintech, among others.

Capitalisation is viewed at an intermediate level, with the GCR core capital ratio closing FY20 at 18.1% (FY19: 20.5%). However, the note is taken of the regulatory capital adequacy ratio (“CAR”), which although exceeded the regulatory minimum at 10.5% at FY20, has a very thin buffer.

Looking ahead, the bank is currently in the process of a capital raise of about N6.5bn and, accordingly, we expect to see a significant improvement in the CAR at the end-December 2021 notwithstanding the bank’s aggressive loan growth pace.

Providus Bank risk position is viewed to be contained, evidenced by the gross non-performing loans (“NPL”) ending strongly below the Central Bank of Nigeria tolerable maximum limit of 5% and the industry average of about 6% at 2.6% at FY20 (FY19:4.4%). However, we believe that the strength of the bank’s risk management is yet to be fully tested given its relatively short track record. Credit losses of 3.2% at FY20 is considered somewhat elevated, albeit in line with the industry average of 3%.

Concentration by the obligor is considered moderately high, having the single and twenty largest exposures accounting for 3.4% and 46.1% respectively of the loan book at FY20. We expect a more diversified loan book over the short to medium term, as the bank continues to strategically expand its lending activities. In addition, foreign currency (“FCY”) risk is considered minimal, with FCY constituting only about 6% of the exposures at FY20.

Funding and liquidity position is assessed at an intermediate level. Providus Bank is largely funded through customer deposits, which has constituted around 70% of the funding base over the review period.

The deposit book, which grew by almost 200% in FY20, reflected the bank’s focus on low-cost deposits, as the average cost of funds for the year was below 3%. Liquidity is good, evidenced by the highly liquid nature of the balance sheet over the review period. As of FY20, GCR liquid assets covered total wholesale funding moderately by 2.2x, while the ratio of GCR liquid assets to total customer deposits stood at 69% (FY19: 41.3%).

In addition, the matching of assets and liabilities maturities at FY20 reflected a cumulative liquidity buffer across the various maturity bands.

Outlook Statement

The Stable Outlook reflects GCR’s expectations that the regulatory CAR will be boosted once the retained earnings is capitalised, and ongoing capital raise is successfully concluded. We also anticipate a better GCR core capital ratio, supported by sound internal capital generation and adequate loan loss reserves.

Rating Triggers

An upward rating could be triggered following a sustained improvement in the regulatory CAR, moderation in credit losses while maintaining liquidity at a sound level. We may lower the ratings if asset quality materially deteriorates and/or if the regulatory CAR remains at its current level.

Fitch Revises Outlook on Access Bank to Stable from Negative; Affirms at ‘B’

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Fitch Revises Outlook on Access Bank to Stable from Negative; Affirms at ‘B’

05 Jul 2021: Fitch Ratings has revised the Outlook on Nigeria-based Access Bank Plc’s Long-Term Issuer Default Rating (IDR) to Stable from Negative, and affirmed the rating at ‘B’. The Viability Rating (VR) has been affirmed at ‘b’. A full list of rating actions is below.

The Outlook revision reflects Fitch’s view that risks to Access Bank’s credit profile have receded since the onset of the Covid-19 crisis, as reflected in the bank’s resilient financial metrics in 2020 and 1Q21 and our expectation that these trends will continue.

Our action also reflects our view that the bank has sufficient headroom at the current rating level to absorb risks to its asset quality, profitability and capital under our base case, resulting from operating environment pressures.

Access Bank gets CBN's nod to convert to Holding company

Key Rating Drivers – IDRS, VR, and Senior Debt Ratings

Access Bank’s IDRs and senior debt ratings are driven by its intrinsic creditworthiness, as defined by its ‘b’ VR. The VR takes into consideration business concentration and sensitivity to Nigeria’s volatile operating environment, mitigated by sound profitability and adequate capitalisation for its risk profile and ensuing reasonable loss-absorption capacity.

The bank’s asset quality has continued to hold up, supported by substantial non-loan assets – largely comprising cash balances at the Central Bank of Nigeria (CBN) (mainly restricted deposits) and government securities – regulatory forbearance on loans, and proactive management of legacy assets at Diamond Bank (acquired 2019).

Access’s impaired (IFRS 9 Stage 3) loans ratio (end-1Q21: 4.4%) compares well with peers, while total reserve coverage is healthy (87%). Impaired loans have fallen due to loan repayments, restructurings, loan conversion to naira from US dollars, and write-offs.

Nevertheless, Stage 2 loans – concentrated in the oil sector – remain high, although they have fallen (end-1Q21: 12.6% of loans; end-1H20: 22%), reflecting the improving economic outlook. We believe migration risk relating to Stage 2 loans should be limited, given the restructuring of a significant proportion of the loans. Total oil-related exposure remains significant (28% of loans), though in line with the sector, and foreign-currency loan exposure since end-2019 has more than halved to 16% at end-1Q21.

Access Bank’s operating profit to risk-weighted assets (RWA) is sound (end-1Q21: 6.1%, up from 3.3 % at end-2020), and has been supported by lower funding costs (reflecting expanding CASA deposits in 2020), increased scale following the Diamond acquisition, and higher oil prices. Non-interest revenue should continue to grow, driven by customer-driven trading income and fee income as economic activity picks up.

Nevertheless, profitability underperforms the highest-rated peers in Nigeria, due in part to integration costs from Diamond Bank. We expect loan impairment charges to remain high in 2021, although lower than in 2020 when Access reported a one-off charge at its UK subsidiary.

Access Bank’s capitalisation is adequate, as reflected in a Fitch Core Capital (FCC) ratio of 17.7% at end-1Q21, albeit below more highly rated peers. Buffers over regulatory minimums are solid (total capital ratio of 22.2% versus the 15% regulatory minimum). However, Access Bank’s tangible leverage ratio (end-1Q21: 8.0%) is below the highest-rated peers, although we expect it to improve as the profitability outlook recovers.

Capitalisation is sensitive to RWA inflation from likely naira depreciation and concentration risk (end-1Q21: the top 20 loans accounted for 1.73x FCC; 70% in Stage 1), although RWA inflation risks should be mitigated by lower foreign-currency exposure than peers and rising internal capital generation.

Access’s funding profile has continued to benefit from its expanded retail franchise following the Diamond Bank acquisition. CASA deposits rose to 63% of the deposit base by end-1Q21 (end-2019: 58%), driving down funding costs. Fitch believes there is scope to increase the share of CASA further to a level more in line with peers, while funding costs could also fall further as outstanding Eurobonds are refinanced at lower rates.

The bank has good overall balance sheet liquidity but takes foreign currency liquidity risk (and counterparty risk) through substantial currency swaps with the CBN. We consider foreign-currency liquidity to be only adequate, notwithstanding potential liquidity available from the broader Access Bank group, in light of the tight FCY conditions in Nigeria. Naira liquidity is supported by large cash placements (excluding restricted deposits at the CBN) and government securities.

National Ratings

Access’s National Ratings reflect its creditworthiness relative to other issuers in Nigeria. They are lower than the highest-rated Nigerian peers due to Access’s weaker profitability and capitalisation metrics. Access’s National Short-Term Rating of ‘F1(nga)’ is the lower of the two possible options for the bank’s ‘A+(nga)’ National Long-Term Rating under Fitch’s criteria, reflecting potential risks to funding and liquidity from market instability.

Access’s naira-denominated subordinated debt rating is ‘A-(nga)’, in line with the two-notch base-case notching in our criteria.

Rating Sensitivities

Factors that could, individually or collectively, lead to positive rating action/upgrade:

Upside to Access’s ratings is unlikely without a material improvement in the operating environment and a sovereign upgrade, accompanied by further improvement in the bank’s underlying asset quality and a strengthening of its capitalisation to a level more in line with large bank peers.

Factors that could, individually or collectively, lead to negative rating action/downgrade:

A material worsening in the operating environment that leads to greater-than-expected pressure on the bank’s financial metrics, could lead to a downgrade.

The ratings could also be downgraded if Access’s FCC ratio remains below 15% for a sustained period, asset quality weakens significantly – to the extent that its impaired-loan ratio rises above 10% – or there is a severe tightening in the bank’s foreign-currency liquidity.

Best/Worst Case Rating Scenario

International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years.

The complete span of best- and worst-case scenario credit ratings for all rating categories range from ‘AAA’ to ‘D’. Best- and worst-case scenario credit ratings are based on historical performance.

ESG Considerations

Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of ‘3’. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity.

Fitch Revises Outlook on Union Bank to Stable; Affirms IDR at ”B-”

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Fitch Revises Outlook on Union Bank to Stable; Affirms IDR at ”B-”

05 Jul 2021 – Fitch Ratings has revised the Outlook on Union Bank of Nigeria PLC to Stable from Negative and affirmed the Long-Term Issuer Default Rating (IDR) at ‘B-‘ and Viability Rating (VR) at ‘b-‘.

The Outlook revision reflects receding risks to Union Bank’s capitalisation and leverage, given the improvement in its asset quality and ensuing lower capital encumbrance by unreserved impaired (Stage 3) loans.

The revision also reflects our view that the bank has sufficient headroom at the current rating level to absorb risks to its asset quality, profitability and capital under our base case resulting from operating environment pressures.

Key Rating Drivers – IDR and VR

Union Bank’s Long-Term IDR is driven by its intrinsic creditworthiness, as defined by its ‘b-‘ VR. The VR reflects underlying loan quality which is still weak, and risks to capital mainly from low provision coverage of Stage 2 and 3 loans and large single-obligor credit concentrations. The VR also reflects Union Bank’s exposure to Nigerian operating environment risks and its limited franchise. However, the VR also reflects the bank’s stable funding and liquidity profile and adequate profitability for its risk profile.

Tax Default: Kogi Govt seals off all Union Bank Branches in the state

Union Bank’s asset quality has continued to hold up, supported by substantial non-loan assets – largely comprising cash balances at the Central Bank of Nigeria (CBN) (mainly restricted deposits) and government securities – and regulatory forbearance on loans, but also loan growth (2020: up 24%, compared with an average of 16% for Fitch-rated Nigerian banks). Its Stage 3 loans ratio improved to 8.3% by end-1Q21 from 9.9% at end-2019. This remains amongst the highest in the sector, but we believe partly reflects conservative loan classification.

However, Stage 2 loans (end-1Q21: 20%) – mainly comprising restructured syndicated loans to borrowers in the power and oil & gas sectors – remain high out of total exposure to these sectors of 8.3% and 29%, respectively.

Union Bank’s total reserves coverage of impaired loans (71% at end-1Q21) is low versus the sector, and reflects reliance on collateral. Specific coverage of Stage 3 and reserves coverage of Stage 2 loans were both low, at 36% and 8.6%, respectively, although unreserved Stage 3 loans fell to 11.4% of Fitch Core Capital (FCC) by end-1Q21 from a peak of 51% (end-2018).

At end-1Q21, the 20 largest loans represented a very high 56% of loans or 2.7x FCC, reflecting Union Bank’s corporate focus (end-2020: 75% of loans) in the undiversified Nigerian economy. Foreign-currency (FC) loans are significant (46%; sector: around 40%), heightening credit risks in light of tight foreign currency liquidity in Nigeria.

Nevertheless, we expect asset-quality pressures to ease notwithstanding an operating environment still facing challenges, given higher oil prices, improvements in Union Bank’s underwriting standards and loan restructurings (end-1Q21: 13%). Asset quality should also continue to be supported by large non-loan assets – mainly restricted deposits with the CBN (19%), and local-currency government securities (17%).

Risks to capital remain high, despite easing, given the sensitivity to concentration risk and asset-quality pressures such as relating to Stage 2 loans. Union’s FCC ratio fell to 15.2% by end-1Q21 from 16% at end-2020, due mainly to risk-weighted asset (RWA) growth, but remains broadly in line with second-tier peers. We expect additional pressure on the FCC ratio in 2021 from loan growth and likely naira devaluation to be largely offset by internal capital generation.

Union’s total capital adequacy ratio of 17.3% at end-1Q21 is moderately above the 15% minimum regulatory requirement and is supported by subordinated debt of NGN30 billion. Pre-impairment operating profit (equal to 3.4% of average loans in 2020) provides a moderate buffer to absorb loan impairments through the income statement without affecting the capital.

Union’s operating profit/RWAs ratio of 2.5% in 2020 compares well with that of second-tier peers, supported by recoveries, a low RWA density (45% at end-2020; loans account for only a third of total assets) as for the sector, and a 36% rise in net trading income driven by gains on disposal of fixed income securities. However, a high-cost base (2020: 78% cost/income ratio) remains a constraint on profitability, reflecting a lack of economies of scale but also investments in digital banking.

We expect profitability to improve in 2021 as business volumes pick up in the stronger growth environment, and in the case of a rate rise (which would support margins), despite likely growth in loan-impairment charges off a low base.

Union’s funding profile is dominated by stable customer deposits (end-2020: 77% of total funding), most of which (68%) comprise low-cost current and savings accounts, thereby supporting margins.

The deposit base is reasonably diversified, with the 20 largest deposits accounting for 14% of the total at end-2020. FC liquidity is well managed, with sufficient coverage of short-term FC liabilities, comprising mainly customer deposits and bank borrowings.

National Rating

The affirmation of the National Rating reflects our view that Union’s creditworthiness relative to other Nigerian issuers has not changed. Union’s National Ratings are lower than most Fitch-rated Nigerian banks, given its weaker loan quality and higher risks to capitalisation and leverage relative to peers.

Rating Sensitivities

Factors that could, individually or collectively, lead to positive rating action/upgrade:

Upside to the ratings is unlikely at present and would require a material improvement in asset quality, along with significantly lower risks to capitalisation and a stronger company profile, notwithstanding challenges from the operating environment.

Factors that could, individually or collectively, lead to negative rating action/downgrade:

Union’s Long-Term IDR and National Rating are sensitive to a downgrade of its VR. The VR could be downgraded due to heightened asset-quality pressures, including low-provisioned loans, particularly if this results in significant erosion of the bank’s capital buffers, such as relative to its minimum regulatory requirements.

The National Rating is sensitive to Fitch’s view of the entity’s creditworthiness relative to other Nigerian issuers.

Best/Worst Case Rating Scenario

International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years.

The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from ‘AAA’ to ‘D’. Best- and worst-case scenario credit ratings are based on historical performance.

ESG Considerations

Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of ‘3’. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity.

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