August 15, 2008
Policy Shift, Insecurity Hinder Nigeria’s Credit Ratings – S&P
By Kingsley Ighomwenghian, Snr Correspondent, Lagos
Standards & Poor’s (S&P), the internationally acclaimed rating agency, has listed policy inconsistency, political risk, the Niger Delta crisis and insecurity as factors constraining Nigeria’s sovereign ranking – and, in turn, its credit rating.
Officials of the agency who addressed journalists and representatives of banks at the launch of a national credit rating scale for Nigeria, also blamed the country’s over-dependence on oil and gas, as well as its failure to reform the sector, in particular, the Nigerian National Petroleum Corporation (NNPC).
Nigeria is rated “BB-” (BB/Stable/B local currency, BB-/Stable/B foreign currency)despite the debt relief granted by international creditors in 2004 and its positive balance of payment and liquidity position, improvements in qualitative factors and balanced budgets, among others.
S&P Managing Director (South Africa and sub-Saharan Africa), Konrad Reuss, added that Nigeria’s credit rating has also been hindered by the implementation of reforms.
“There is so much uncertainty and the Niger Delta situation relating to the production side of oil. These are holding back improvement in Nigeria’s rating, these are risks that could cause some slippage. We’re lucky that the crisis in the Niger Delta has come at a time when oil prices are very high on the international market,” he said.
Matthew Pirnie, S&P Head of Bank Rating, also cited infrastructure problems, poverty, low development and the need for companies to invest in staff retraining to meet the requirements for rating.
Reuss listed factors that could improve Nigeria’s credit risk rating to include balance sheet strength, external liquidity, financial position of the government and continuously high oil prices.
“High global oil prices, strong macroeconomic growth and increased involvement by international investors in the country’s maturing financial markets have created a boom period for Nigeria, already firmly established as the financial hub of West Africa.
“Although the Nigerian domestic debt market is still relatively small by international standards, private sector interest in Naira-denominated assets is rising. Standards & Poor’s believes the market will grow rapidly in the coming years as local and federal governments, banks and infrastructure projects seek to fund long-term projects,” he enthused.
The agency noted that the Nigerian national scale, like all others across the globe, is designed to appeal to a wide range of companies and institutions seeking to raise capital in the country.
National scales are also to help S&P offer distinction in credit quality of local debt issuers than is allowed by its global rating scale. It will provide issuers, counterparties, intermediaries, and investors in the country’s financial markets with both debt ratings, which apply to a specific debt instrument, and issuer credit ratings, which apply to a specific obligor, S&P noted in a statement.
Reuss expects that S&P’s new unique instrument will positively contribute to a better informed, more liquid and efficient capital market in Nigeria, as happened in other emerging economies like Brazil, Russia, Mexico, China, Ukraine, Kazakhstan, South Africa and Turkey.
S&P has so far rated five Nigerian banks. Four of them – Guaranty Trust, First Bank, Intercontinental, and Zenith – scored “BB-”. First City Monument is rated “
Pirnie noted that it is hard to properly rate Nigerian banks because of the problems of uncommon year-ends and transparency.