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Stanbic bank gets top international credit rating

Stanbic Bank Uganda Chief Executive, Anne Juuko (PHOTO/Courtesy)

Fitch, the international credit rating agency, has affirmed Stanbic Bank Uganda Limited’s (SBU) Long-Term Issuer Default Rating (IDR) at ‘B+’, with ‘AAA’ being the highest possible rating while ‘D’ is the lowest.

Commenting on the development, Anne Juuko, the Stanbic Bank Chief Executive, said: “We welcome the positive rating by Fitch which speaks to the stability of our business and ability to support Uganda’s economic growth in a challenging operating environment.”

SBU is Uganda’s largest bank accounting for 22 percent of banking sector assets as at the end of December 2021. Its leading domestic franchise is underpinned on a strong corporate and investment banking (CIB) business, relationships with the leading corporate companies operating in Uganda and other benefits derived from being part of the Standard Bank Group (SBG), which is Africa’s biggest lender by assets.

Fitch regularly generates IDRs for a range of business sectors. An ‘issuer’ may be a financial or non-financial corporation, a sovereign company, or an insurance company. A ‘Default Rating’ is the measure of an institution’s credit risk.

Risk is defined by a company’s threat of becoming defunct or entering into bankruptcy, administration, receivership, liquidation, or other formal winding-up procedures. Fitch relies on independent auditors and other experts to produce IDRs.

In a press statement issued on Tuesday, April 26, Fitch said SBU’s National Ratings reflect its creditworthiness relative to other issuers in Uganda. SBU’s ‘AAA (uga)’ National Long-Term Rating is the highest possible on Uganda’s national scale and considers potential support available from Standard Bank Group.  SBU’s Long-Term IDR is one notch below that of SBG, reflecting SBU’s strategically important role in the group’s regional operations.

Fitch stated that SBU’s regulatory capital ratios have healthy buffers above the new minimum requirements.

“The Stable Outlook reflects our view that SBU’s creditworthiness compared to other domestic issuers is unlikely to change over a one- to two-year period. SBU’s profitability is expected to further recover in 2022 resulting from a likely rise in Uganda’s interest rates and stronger loan growth.”

However, Fitch cautions that this projection could be partially offset by a rise in write-offs of non-performing loans and the expiry of debt relief measures first announced by the Bank of Uganda during 2020 to help soften the impact of the Covid-19 pandemic on both borrowers and the banks.

Loans under repayment moratoria, mainly in the real estate, education, and industrial sectors, increased to eight percent of gross loans at end-2021 and may pressure asset quality when remaining credit relief measures expire at end-September 2022.

Another factor relates to the effects from the Russia-Ukraine conflict and lingering pandemic risks that could negatively impact the economic recovery given Uganda’s small economy, low vaccination rates and oil import reliance.

However, the Bank’s funding profile, Fitch noted, is dominated by current and savings accounts (end-2021: 96 percent of deposits), supporting an inexpensive and stable deposit base. SBU’s balance sheet is structurally liquid, helping to mitigate high single-depositor concentration.

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