UBA Ghana’s Credit Ratings Stand Steady as Fitch Gives Nod of Confidence
Fitch Affirms Viability Rating of ‘ccc’ for UBA Ghana
In its latest update, Fitch Ratings has affirmed the credit ratings of United Bank for Africa (Ghana) Limited (UBA Ghana), maintaining its Long-Term Issuer Default Rating (IDR) at ‘B-‘ with a Stable Outlook. The credit rating agency also affirmed UBA Ghana’s Viability Rating (VR) at ‘ccc’.
Parental Support and Stability
UBA Ghana’s Long-Term IDR rating reflects the potential support it can receive from its parent company, United Bank for Africa Plc (UBA). This support is expressed through a Shareholder Support Rating (SSR) of ‘b-‘, highlighting UBA’s willingness to stand behind its Ghanaian subsidiary if necessary. The Stable Outlook attached to UBA Ghana’s IDR signifies stability in alignment with UBA’s own Long-Term IDR.
Country Ceiling Alignment
Fitch Ratings has aligned UBA Ghana’s Long-Term IDR with Ghana’s Country Ceiling rating of ‘B-‘. This alignment mirrors Fitch’s assessment of the transfer and convertibility (T&C) risk within the country.
Viability Rating and Risk Assessment
UBA Ghana’s Viability Rating (VR) stands at ‘ccc,’ indicating a notable risk of failure. This risk is primarily associated with the bank’s substantial exposure to the Ghanaian sovereign, including losses incurred during domestic debt restructuring and anticipated challenges related to loan quality. Nevertheless, UBA Ghana benefits from robust capital buffers that help mitigate some of these risks.
Shareholder Support
Fitch acknowledges UBA’s strong inclination to support UBA Ghana, driven by the Ghanaian market’s significance in UBA’s broader pan-African strategy and the potential reputational impact of a subsidiary default. However, it is important to note that UBA’s ability to provide support is somewhat restricted by its own creditworthiness.
Sovereign Default and High Exposure
Ghana recently underwent domestic and external debt restructuring, leading to substantial net present value losses for bondholders. UBA Ghana holds a considerable amount of Ghanaian sovereign debt instruments, contributing to its exposure to sovereign risk.
Rising Impaired Loans
The impaired loans ratio at UBA Ghana has increased, primarily due to borrowers’ weakened resilience in the face of high interest rates and inflation. Nonetheless, the bank’s limited loan book and asset quality closely correlate with the creditworthiness of the sovereign.
DDEP Impact on Profitability
The domestic debt-exchange program (DDEP) has adversely affected UBA Ghana’s profitability, with operating returns on risk-weighted assets declining to 2.2% in 2022. This reduction is largely attributed to substantial impairment charges arising from the DDEP.
Strong Capital Buffers
One of UBA Ghana’s strengths lies in its ample capital buffers, boasting a tangible leverage ratio of 19.2% at the close of 1H23. These buffers provide resilience against sovereign debt restructuring and potential increases in problem loans.
Healthy Liquidity
UBA Ghana’s funding predominantly relies on customer deposits, with minimal dependence on external funding. Additionally, the bank maintains foreign-currency liquid assets with investment-grade international banks, which cover a substantial portion of foreign-currency customer deposits.
Fitch Ratings’ latest assessment underscores the influence of sovereign risk on UBA Ghana’s credit ratings. However, the bank benefits from the potential support of its parent company, strong capital reserves, and sound liquidity management. The Stable Outlook signals a level of stability in line with UBA’s own outlook, though challenges related to the Ghanaian sovereign and impaired loans remain key considerations for UBA Ghana’s creditworthiness.
