Anne Juuko, Stanbic Bank Uganda Chief Executive

Fitch, the international credit rating agency has affirmed Stanbic Bank Uganda Limited’s (SBU) Long-Term Issuer Default Rating (IDR) at ‘B+’ while it also maintains its ‘AAA’ rating in Uganda.

According to Fitch, 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.

SBU is Uganda’s largest bank accounting for 22% of banking sector assets as at the end of December 2021.

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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 nonfinancial 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.

Fitch states 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’.

“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,” said Anne Juuko, Stanbic Bank Chief Executive.

Caution

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 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 8% 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 and undiversified 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% of deposits), supporting an inexpensive and stable deposit base. SBU’s balance sheet is structurally liquid, helping to mitigate high single-depositor concentration.