Fitch affirms ETI at B-; Outlook stable

Fitch Ratings has affirmed Ecobank Transnational Incorporated’s (ETI), parent company of Ecobank Ghana Long-Term Issuer Default Rating (IDR) at ‘B-‘ and its Viability Rating (VR) at ‘b-‘.

The Outlook on the Long-Term IDR is also Stable.

Fitch said ETI IDRs are driven by its standalone creditworthiness, as expressed by its VR of ‘b-‘.

“As a bank holding company (BHC), ETI’s VR is notched down once from the group VR of ‘b’ due to very high common equity double leverage (end-3Q23: 177%). The group VR takes into consideration the group’s heightened exposure to foreign exchange (FX) risk and modest capital buffers for its risk profile. These are balanced against a leading pan-African franchise, strong revenue and geographical diversification, acceptable asset quality, healthy operating profitability and a strong funding and liquidity profile”, it revealed.

High exposure to volatile sovereigns:

Fitch said operating conditions are negatively influenced by high sovereign debt sustainability risks across sub-Saharan Africa (SSA).

“Nigeria (B-/Stable) and Ghana (Restricted Default), which are two of the group’s largest markets (end-3Q23: combined 29% of total assets), have both been downgraded in recent years, with Ghana defaulting on local- and foreign-currency (FC) debt in 1Q23. Geographical diversification mitigates sovereign risks, including high exposure to sovereigns rated ‘B-‘ and below”, it pointed out.

Large Foreign Currency Transition Losses

The London-based firms noted that ETI is exposed to the depreciation of SSA currencies through its equity investments in subsidiaries because its reporting currency is US dollars. ‘The depreciation of SSA currencies led to large FC translation losses through other comprehensive income in 9M23 that significantly exceeded net income, resulting in a comprehensive loss of US$236 million (equivalent to 12% of total equity at end-2022). The impact of FC translation losses on capitalisation is mitigated by risk-weighted assets (RWAs) deflating in dollar terms”.

Healthy Operating Profitability

Fitch said the high operating profit of ETI improved significantly to 4.6% of RWAs in nine month of 2023 (2022: 3.2%).

This reflected a wider net interest margin due to rising interest rates.

Fitch thus expects operating returns on RWAs to remain healthy in 2024.