International credit rating firm Fitch Ratings has kept Ecobank Nigeria Limited’s Long Term Issuer Default Rating (IDR) unchanged at ‘CCC’ level.
In a statement issued on Tuesday, Fitch announced it has lowered the bank’s Viability Rating (VR) from ‘ccc’ to ‘f’ and reduced the Shareholder Support Rating (SSR) from ‘ccc’ to ‘no support’.
The agency also cut the bank’s National Long Term Rating from ‘BB (nga)’ to ‘B+ (nga)’.
Fitch explained, “The VR downgrade reflects our assessment that the bank faces a serious capital shortage, with its total capital adequacy ratio (CAR) falling below the required 10% regulatory minimum since February 2024, even with extensive regulatory leniency. We believe Ecobank Nigeria will need to boost its capital through significant external support or continue operating under regulatory flexibility due to its poor profitability and extremely concentrated credit risks and bad loans. This situation meets our criteria for bank failure.
“The SSR downgrade stems from our view that delays by Togo based parent company Ecobank Transnational Incorporated (ETI; B /Stable) in providing substantial capital injection suggests a poor track record of timely capital support, with no reasonable expectation of liquidity assistance to prevent defaulting on senior obligations.
“The Long Term IDR confirmation despite the VR and SSR downgrades shows our view that default risk has not significantly increased,” Fitch stated.
The National Long Term Rating downgrade reflects our assessment that following the VR and SSR reductions, Ecobank Nigeria’s creditworthiness compared to other Nigerian financial institutions has deteriorated.
Ecobank’s Default Risk Remains Significant Concern
Fitch Ratings indicates that the Long Term Issuer Default Rating (IDR) represents their evaluation that default continues to be a serious possibility for Ecobank Nigeria, mainly because of substantial capital shortages and potential deposit outflows given the bank’s restricted foreign currency liquidity.
Despite these issues, Fitch believes the bank currently maintains sufficient liquidity to honor its financial commitments, including the outstanding USD150 million Eurobond due in February 2026.
The Viability Rating (VR) of ‘f’ demonstrates the extent of the bank’s capital problems. This rating falls below the implied ‘ccc’ level after negative adjustments for poor capitalization and leverage.
Ecobank recently completed a buyback offer for $150 million of its $300 million Eurobond at a slight premium.
“Through this offer, bondholders agreed to eliminate a covenant related to CAR violations, allowing Ecobank Nigeria to avoid potential Eurobond acceleration. The bank has adequate internal liquidity to repay the remaining $150 million due in February 2026 and might receive some liquidity assistance from the parent group. However, foreign currency liquidity remains weak by local standards, especially since a large portion of foreign currency deposits consists of less stable term deposits,” Fitch noted.
Additional Analysis
Fitch observed that Ecobank Nigeria has continued violating the 10% minimum capital adequacy ratio (CAR) requirement since the naira devaluation in February 2024, despite receiving considerable regulatory tolerance.
The rating agency highlighted that Ecobank Nigeria has shown little improvement in meeting the capital adequacy ratio (CAR) requirements, with the shortfall becoming more pronounced when regulatory forbearance effects are removed.
Fitch concludes the bank confronts a major capital gap and will likely struggle to achieve compliance or exit forbearance without substantial capital investment, considering its high problem loan levels and poor profitability performance.