Fitch Rating has downgraded Union Bank of Nigerias credit rating citing a breach in capital adequacy ratio (CAR) requirement. Regulators use CAR to ensure banks have sufficient capital to absorb potential losses without losing depositor funds or becoming insolvent. It is calculated by dividing capital by risk-weighted assets.
According to the Central Bank, national banks like Union Bank are required to maintain a minimum CAR of 10%. According to Fitch estimates, Union Bank reported 16% CAR in Q3 2023, above its threshold.
Fitch lowered Union Banks long-term issuer default ratings (IDR) from B- to to CCC. It also downgraded the banks national long-term rating. However, it removed Union Bank from negative watch.
The credit rating agency warned that an extension of the breach in CAR requirements could lead to a further downgrade in the banks viability ratings, which measure an entitys relative ability to meet financial commitments.
The new credit ratings will pressure Union Banks new leadership to strengthen the focus on buffering its capital base to tolerate naira depreciation and credit losses. The banks recovery will depend on internal capital generation and execution of an agreed-upon recapitalisation plan pending its merger with Titan Trust Bank.
