GCR Affirms BBB+(NG) Rating on Union Bank’s N13.5bn Bonds

By Modupe Gbadeyanka

The BBB+(NG) rating assigned to the N13.5 billion Series 1 and Series 2 bonds of Union Bank of Nigeria Plc has been affirmed by Global Credit Ratings (GCR).

The local credit agency said the mid-tier lender has been meeting its obligations under the issuances on a timely basis, up to the most recent coupon payment date March 3, 2020.

In September 2018, the commercial bank issued the series 1 and series 2 bonds under its N100 billion debt issuance programme.

For the series 1 notes, which have a three-year tenor at a fixed annual interest rate of 15.5 per cent, the bank raised N7.2 billion and for the series 2, with a 7-year maturity at a fixed rate of 15.75 per cent, the lender raised N6.3 billion.

In a statement issued on Tuesday, GCR said while affirming the rating on the Union Bank’s papers, it accorded them with a negative outlook.

The firm said its rating was based on the improvement in asset quality and capitalisation metrics of the lender at FY19.

It said in the 2019 fiscal year, Union Bank’s profitability improved, largely supported by non-interest income (particularly recoveries).

In the year under review, while the net interest income grew marginally 1.8 per cent to N52.5 billion, non-interest income increased by 24.8 per cent to N42.8 billion (of which N12 billion relates to recoveries).

Profitability was further enhanced by the absence of impairment and a relatively flat operating expense, while cost ratio though moderated to 74.5 per cent from 83.1 per cent the prior year, measured above the industry average of 67 per cent.

Furthermore, the pre-tax profits rose by 37.5 per cent to N24.8 billion, well ahead of budget. Thus, ROaE and ROaA improved to 10.5 per cent and 1.5 per cent respectively from 6.4 per cent and 1.2 per cent in FY18.

“Also, performance as at 1Q FY20 reflects a significant improvement relative to the corresponding period in FY19,” GCR said in the statement.

Concerning the negative outlook on the rating, GCR said it was because of the current macro-economic challenges, exacerbated by the sustained weighting of the bank’s loan book to the challenged oil and gas sector, which it said remains a major constrain.