(The following statement was released by the rating agency) Sept 28 – Fitch Ratings has affirmed Bank of Africa Benin’s (BoAB) and Bank of Africa Niger’s (BoAN) Long-term Issuer Default Ratings (IDRs) at ‘B’ with Stable Outlooks. Fitch has also affirmed BoAB’s Viability Rating (VR) at ‘b-‘ and BoAN’s VR at ‘ccc’. A full rating breakdown is provided at the end of this comment. RATING DRIVERS AND SENSITIVITIES – IDRs and SUPPORT RATING The IDRs and Support Rating of BoAB and BoAN are based on Fitch Ratings’ view of the availability of support that either bank could expect to receive from its ultimate controlling shareholder, Morocco’s BMCE Bank (BMCE) if needed. Should BoAB and BoAN require support, such support would, in Fitch’s opinion, be ultimately provided by BMCE, which is the majority shareholder of BoAB and BoAN’s holding company, Bank of Africa Group (BoAG). Fitch believes that there is a limited probability that BoAB or BoAN would receive support from BMCE, if needed, given that BMCE is not a direct shareholder, complex ownership structure, and uncertainties about BMCE’s ability to do so. BMCE owns 62% of the BoAG, which in turn owns direct and indirect controlling stakes in both BoAB and BoAN. BMCE is Morocco’s third-largest bank by total assets and has a strategy to expand in sub-Saharan countries through BoAG, which is the holding company of BoA group (BoA), one of Africa’s largest banking groups with a presence in 15 African countries. BoAB’s and BoAN’s IDRs would benefit from a stronger and straightforward controlling ownership from BMCE, much higher integration within BMCE, and/or an improvement in BMCE’s stand-alone financial strength. Conversely, a change in Fitch’s assessment of BMCE’s propensity and/or capacity to provide support to BoAB and BoAN could result in a downgrade of the banks’ Support Rating and IDRs. Support from the Benin’s state to BoAB, or from the Niger’s state to BoAN, is unlikely, in Fitch’s opinion, given their very weak financial capabilities. RATING DRIVERS AND SENSITIVITIES – VR BoAB’s VR reflects Benin’s difficult operating environment, high and concentrated exposure to risky West African sovereigns and corporates, high impaired loan ratios, and thin capitalisation. BoAB’s credit risk is high, with a substantial number of domestic and non-domestic large exposures. At end-2011, BoAB’ largest exposures amounted to 121% of the bank’s Fitch core capital (FCC), and seven exposures represented more than 10% of BoAB’s equity. In addition, impaired loans (180 days overdue) accounted for a high 14.1% of gross loans at the same date. The bank has a growing fixed-income liquidity portfolio, which is exclusively comprised of West African government securities, and therefore fuelling additional credit risk exposures to weak economies. Fitch considers BoAB’s capitalisation — as measured by Fitch core capital ratio (at 21.6% at end-2011)– to be tight considering its credit risk profile, high operational risk exposure, and 0% risk-weighting on a large portfolio of weak sovereign debt. Deterioration in West Africa’s political and economic environment leading to a deterioration in BoAB’s asset quality and/or capital ratios could result in the downgrade of BoAB’s VR. BoAN’s VR reflects the bank’s vulnerability to Niger’s difficult and volatile operating environment, its significant lending book concentration, tight liquidity and though improving, capital. The VR also takes into account the bank’s prudent strategy and resilient asset quality. BoAN’s loan book concentration is a concern, although concentration risk is somewhat mitigated by the acceptable credit quality of counterparties, mainly local large corporates and subsidiaries of multinational corporations. Fitch views positively the bank’s growing capital base, although its absolute size remains small given the operating environment and credit risk profile. BoAN’s has a fairly good track record in impaired loans ratios due to the bank’s focus on local large corporates and subsidiaries of multinational corporations. At end-2011, impaired loans (180 days overdue) accounted for 4.2% of gross loans, and were 78%-reserved. BoAN’s liquidity is highly dependent on funding provided by other banks from the BoA Group (32% of non-equity funding at end-2011). Deterioration in BoAN’s asset quality, or material losses from operational risks which would materially deplete capital ratios, could result in the downgrade of its VR. BoAB is the largest bank of BoAG (22% of total consolidated assets at end-2011). It is Benin’s largest commercial bank, with total assets of XOF552bn at end-2011 and a market share of approximately 30% of deposits and 23% of loans at end-H112. BoAN had total assets of XOF159bn at end-2011 and a market share of 20% of deposits and 22% of loans at end-H112.
Fitch affirms the following ratings:
BoAB Long-term IDR at ‘B’, Outlook Stable Short-term IDR at ‘B’ Viability Rating at ‘b-‘ Support Rating at ‘4’.
BoAN Long-term IDR at ‘B’, Outlook Stable Short-term IDR at ‘B’ Viability Rating at ‘ccc’ Support Rating at ‘4’ (Caryn Trokie, New York Ratings Unit)