Fitch Ratings has affirmed Guaranty Trust Holding Company Plc’s (GTCO) and its main operating subsidiary Guaranty Trust Bank Limited’s (GTB), Long-Term Issuer Default Ratings (IDRs) at ‘B-’ with positive outlooks. Fitch also affirmed the issuers’ National Long-Term Ratings at ‘AA (nga)’ with stable outlooks.
In a statement, the credit rating agency said the issuers’ IDRs are driven by their standalone creditworthiness, as expressed by their Viability Ratings (VRs), adding that the VRs are constrained by Nigeria’s LongTerm IDRs of ‘B-’ due to the issuers’ high sovereign exposure relative to capital and the concentration of their operations in Nigeria. It stated that the issuers’ National Long-Term Ratings are higher than those of other Nigerian Domestic Systemically Important Banks (D-SIBs) due to stronger profitability and capitalisation.
President Tinubu has pursued key reforms since he assumed office in May 2023, reducing the fuel subsidy and overhauling monetary policy, including by allowing the naira to devalue by over 65per cent. Fitch said the reforms are positive for Nigeria’s creditworthiness but pose near-term macro-economic challenges for the banking sector.
According to the statement, GTCO is Nigeria’s fifth-largest banking group, representing six per cent of banking system assets at end-2023, but benefits from having the banking sector’s lowest cost of funding. Also, the Group’s revenue diversification is high, with noninterest income representing 63 per cent of operating income in the first quarter of 2024 (2023: 59%). “The single-obligor credit concentration is moderate, with the 20 largest loans representing 115 per cent of Fitch Core Capital (FCC) at end-1Q24.
Oil and gas exposure (end-2023: 42% of net loans) is very high. It stated that Nigeria sovereign exposure through securities and cash reserves at the Central Bank of Nigeria (CBN) is high relative to FCC (end-2023: over 200%),” the statement added. Fitch explained that GTCO is the most profitable of all Nigerian banks, with operating returns averaging 8.6 per cent of risk-weighted assets (RWAs) over the past four years.
Profitability is also supported by low cost of funding, high non-interest income and typically low loan impairment charges (LICs). The profitability of the bank increased significantly in 2023, primarily driven by large foreign-exchange (FX) revaluation gains stemming from GTCO’s net long foreign currency (FC) positions after the naira devaluation, and will benefit from rising interest rates in 2024.