Fitch affirms stable outlook on UBA subsidiaries in Cameroon, Ghana and Senegal

A foremost global rating agency, Fitch Ratings 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.

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 notes; "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% and 16.4% 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%) and lower at UBA SEN (15.1%)".

In assessing the asset-liability management of UBA subsidiaries in Cameroon, Ghana and Senegal, Fitch noted that "loan portfolios are largely funded by deposits at the three banks, which report loans/deposits ratios of around 65%-75%. The maturity profile of corporate loans is short-term while retail loans can be extended for up to three to five years. The banks’ balance sheets are liquid. This is credit-positive because it provides some protection against the considerable liquidity risks". The banks’ large stockpile of government bonds can readily be repo'ed at local central banks to provide immediate liquidity if required, Fitch added.

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 5% of consolidated group assets, followed by UBA Cameroon at 4.5% and UBA Senegal at 2.5%. 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".

United Bank for Africa Plc is a leading Pan-African financial institution, offering banking services to more than fourteen million customers across over 1,000 business offices and customer touch points in 19 African countries. With presence in New York, London and Paris, UBA is connecting people and businesses across Africa through retail, commercial and corporate banking, innovative cross border payments and remittances, trade finance and ancillary banking services.

Whilst the Bank await relevant approvals for the publication of its 2017 financial year end results, the performance in the first three quarters of the year was quite impressive, growing gross earnings by 26% year-on-year to USD1.1 billion and a sterling 33% growth in profit before tax to USD256 million within nine months. At a season when peer Pan-African banks shrank loan portfolio and balance sheet due to the sparse system liquidity in Nigeria and a number of other African economies, UBA Plc grew loans and total assets by 6% and 8% respectively within the first three quarters of 2017.