By Audrey Lotechukwu
THUR 06 MAY, 2021-theGBJournal- In their latest rating action, Fitch Ratings has affirmed Togo-based Ecobank Transnational Incorporated’s (ETI) Long-Term Issuer Default Rating (IDR) and Viability Rating (VR) at ‘B-‘ and ‘b-‘ respectively, with a stable outlook.
Fitch said ‘’ETI is highly revenue-generative,’’ while highlighting its key rating drivers.
The group’s pre-impairment operating profitability was up 8% year-on-year, supported by a sharp reduction in its cost of funding by about 110bp and lower operating expenses.
Fitch’s core profitability metric, operating profit/risk-weighted assets (RWAs), was down only 30bp to 2.4% in 2020, driven by a large increase in loan impairment charges.
‘’We expect the core profitability metric to rise to about 2.5%-3% in 2022 with improving asset quality and recovering business conditions,’’ Fitch said.
According to Fitch, capitalisation is a rating weakness in light of still high country risks and its sensitivity to foreign-currency translation losses. ETI’s common equity Tier 1 (CET1) ratio improved to 9.2% at end-2020 from 8.8% at end-2019, driven by full earnings retention and flat RWA growth.
The total capital adequacy ratio under Basel II/III of 12.3% at end-2020 provided comfortable buffer of 100bp over the regulatory minimum.
‘’We expect the group to maintain adequate regulatory capital buffers in 2021-2022, even though the contribution of its USD400 million convertible bond due in 2022 to tier 2 capital is diminishing.’’
‘’ETI’s core funding profile is solid’’, according to the rating agency, ‘’benefiting from geographically diversified low-cost current and savings accounts (82% of total customer deposits at end-2020), complemented by diverse market funding.’’
The group has a substantial cushion of liquid assets (including net bank placements, short-term debt securities and cash balances less mandatory reserves) of about USD6 billion, equal to 33% of total customer deposits at end-2020.
Fitch believes that some of the group’s key subsidiaries could be supported by their respective national authorities, but such support is unlikely to extend to ETI itself.
‘’While Nedbank Group Limited (BB-/Negative; 21.2% shareholding) and Qatar National Bank (A+/Stable; 20.1%) are long-term and strategic investors in ETI, their current stakes in the group and the limited integration of operations mean that institutional support cannot be relied upon. As a result, institutional support is not factored into the ratings.’’
ETI is the bank holding company (BHC) of the pan-African Ecobank Group that operates in 35 countries on the continent.