Fitch Ratings – Paris – 12 May 2020: Fitch Ratings has affirmed Banque Ouest Africaine de Developpement’s (BOAD) Long-Term Issuer Default Rating (IDR) at ‘BBB’ with a Stable Outlook. KEY RATING DRIVERS
BOAD’s ‘BBB’ rating is driven by extraordinary support from its shareholders (assessed at ‘bbb’). Fitch has revised the bank’s intrinsic assessment to ‘bb’ from ‘bb+’ to reflect the impact of the COVID-19 crisis on BOAD’s solvency. Fitch expects a sharp slowdown in GDP growth in the countries where the bank operates in the West African Economic Monetary Union (WAEMU). This will impact the quality of the bank’s assets. BOAD’s intrinsic assessment reflects its solvency assessment of ‘bbb’ and a three-notch negative adjustment resulting from the high-risk business environment in which the bank operates.
Fitch assesses shareholders’ capacity to support at ‘bbb-‘, taking into account the average credit quality of the bank’s key shareholders: the regional central bank (the Banque Centrale des Etats de l’Afrique de l’Ouest, BCEAO, 47% of capital) and Cote d’Ivoire (‘B+’, 6% of capital). The BCEAO’s ability to tap the fiscal resources that it manages on behalf of the regional member states (MS) to secure payment of capital increases translates into an ‘exceptional’ propensity of shareholders to support and a one-notch uplift over the capacity to support, leading to an overall support assessment of ‘bbb’.
The revision of the bank’s solvency assessment to ‘bbb’ from ‘bbb+’ is driven by deterioration in our assessment of the credit quality of BOAD’s loan portfolio, to ‘high’ risk from ‘moderate’ previously. Fitch expects the average rating of the bank’s loans to deteriorate to ‘B-‘ from ‘B’ currently, driven by a weakening in the credit quality of non-sovereign loans (31% of the total). Fitch expects non-performing loans (NPLs) in the non-sovereign portfolio to increase markedly in the short term, from 3% of total loans as of end-2019, as a result of the economic impact of the global pandemic.
The agency does not expect impairment on the bank’s sovereign exposures (69% of the loans) reflecting BOAD’s preferred creditor status (PCS). The bank has a strong track record of sovereign loan performance, even when its borrowers defaulted to other creditors during past economic or political crises. Nonetheless, non-performing sovereign exposure is a downside risk to the forecast.
The overall assessment of risk remains ‘moderate’ as the ‘high’ credit risk is partly offset by a stronger assessment of other risk metrics. Concentration risk is considered ‘moderate’, […]
