Agusto & Co. a global rating agency, has assigned an “Aa-” rating to United Bank for Africa (UBA) Plc.
A statement from the bank explains that the rating reflects its 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 (CBN) recent regulation requiring deposit money banks to maintain a loan-to- deposit ratio (LDR) of at least 60 per cent, Agusto & Co. notes that as at December 31 2018, the banking industry’s loan to deposit ratio stood at 63 per cent.
Further examining this ratio by bank shows that most Tier 1 banks recorded LDRs below the newly introduced floor of 60 per cent. 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 three loans accounting for over 10 per cent of gross loans & advances as at December 31 2018, alongside a lingering macroeconomic lull, asset creation strategies of banks are expected to be conservative in the short-term.