Peter Amangbo of Zenith Bank has expressed delight over the performance of the bank and the way Customers are getting attracted. Within the context of the Nigerian operating environment, a total of seven Deposit Money Banks (DMBs) have been rated high in asset quality.
The banks are: Zenith Bank, Guaranty Trust Bank (GTB), First Bank Nigeria (FBN) Plc, United Bank for Africa (UBA), and Access Bank Plc. Others are Fidelity Bank and First City Monument Bank(FCMB).
Loan quality and asset quality are two terms with basically the same meaning. While a good quality loan brings good returns to banks and can hardly go bad, a bad quality loan has a higher probability of becoming a non-performing loan with no return.
Bank managers are concerned with the quality of their loans since that provides earnings for the bank.
According to a recent report by a credit rating agency Fitch, Zenith Bank’s “Asset quality is sound.”
FBN’s Asset quality metrics are “acceptable but the group has the highest oil & gas exposure among peers (40% of gross loans at end-September 2014).”
GTB has a “healthy asset quality,” driven by sound underwriting, and adequate capital, while UBA’s asset quality remains “adequate.”
For Access Bank, it said the Intercontinental Bank acquisition has benefitted its financial metrics, including “improved earnings and asset quality.”
The global rating agency also described FCMB’s Asset quality as being “acceptable.”
For Fidelity Bank, the agency considered the bank’s asset quality metrics over the last three years as “improved.”
Other banks that almost made the list are Diamond and Union Bank. For the former, Fitch said its asset quality is slightly weaker than most peers. “While the level of impaired loans is currently acceptable, certain large exposures present downside risk,” Fitch observed.
Also, “Union’s Viability Rating reflects threats to asset quality ratios from a sizeable portfolio of past due, but not impaired, loans and a material exposure to the oil sector. Though Fitch expects liquidity to remain tight in 2015, amplified by higher Central Bank reserve requirements, customer deposit growth should remain healthy and help loans-to-deposit ratios remain below the regulatory limit of 80 per cent.
However, the agency explained further, that a prolonged economic downturn is a threat to all banks’ Viability Ratings (VRs). The VRs are also sensitive to the following bank specific factors.
“Zenith’s VR it stated, is sensitive to a general increase in risk appetite, worsening underwriting standards and a reduced focus on liquidity.
“The VRs of FBNH and FBN are sensitive to weaker asset quality, in particular relating to significant oil and gas exposures. VR upgrades, though unlikely at present, could in the longer term result from the group successfully broadening its franchise and strengthening revenue generation.
“An upgrade of UBA’s VR could result from the bank continuing to improve its capitalisation, accompanied by low credit losses, resilient profitability and manageable growth in lending.
GTB’s VR is sensitive to loan concentration risks as several large corporate defaults could quickly erode the bank’s capital base. Asset quality could also be put under pressure by the bank’s increasing operations outside of Nigeria, particularly in east Africa.
“Access’ VR is most sensitive to asset quality deterioration from the current level. The VR may be upgraded in the medium term if its company profile continues to strengthen and if it can demonstrate healthy and stable financial metrics through the economic cycle.
“An upgrade of Diamond’s VR is unlikely in the near term given the bank’s inadequate capitalisation and somewhat weak asset quality. In the longer term an upgrade could follow a continued improvement in capitalisation, combined with manageable growth and improved financial metrics.
“Fidelity’s VR currently has limited upside potential, due to the bank’s limited franchise. A downgrade is most likely to result from prolonged losses resulting from an economic downturn and/or a liquidity shortfall.
“Union’s VR has limited potential for an upgrade at present, having recently emerged from insolvency in 2012. Over time, a sustained and significant improvement in the bank’s financial profile through the economic cycle, particularly earnings and asset quality metrics, could lead to an upgrade of the VR. The VR remains sensitive to further material worsening in asset quality due to previously unrecognised problems or high loan concentrations.
“FCMB’s VR has limited upside potential at present. In the medium term an upgrade could result from the bank building a larger and sustainable franchise, achieving a strong performance track record and maintaining a more liquid balance sheet,” the agency stated.