OREANDA-NEWS. Fitch Ratings has affirmed Togo-based Ecobank Transnational Incorporated's (ETI) Long-term Issuer Default Rating (IDR) at 'B'. The Outlook is Stable. ETI is the holding company of the pan-African Ecobank group. A full list of rating actions is at the end of this commentary.

KEY RATING DRIVERS
IDRs and Viability Rating
ETI's Long-term IDR is driven by its intrinsic creditworthiness, as reflected in its 'b' Viability Rating (VR). ETI's VR is constrained by its volatile operating environment. The VR factors in ETI's leading pan-African network, vulnerable asset quality, solid capacity to generate earnings, acceptable capital ratios and adequate funding and liquidity profile. The group's operations across multiple countries are a positive driver for ETI's VR as we consider the group benefits from diversification.

Fitch considers ETI's operating environment as volatile and challenging, which has a high influence on the VR. As a leading pan-African banking group, ETI operates in not rated or low rated countries (between B and BB-). Fitch also views financial market developments and regulatory frameworks as weak in most of these jurisdictions. Around 40% of ETI's assets are in Nigeria (BB-/Negative) where its 100%-owned operating subsidiary, Ecobank Nigeria, is based. The operating environment in Nigeria is facing various challenges, with increased vulnerability of the oil and gas sector, pressure on the naira, slower economic growth and tightening bank liquidity, which puts the group under pressure.

Fitch views ETI's company profile as solid. The group has fully fledged banking subsidiaries in 36 countries across the region and provides a full range of corporate, retail and investment banking services. We expect ETI to benefit from substantial synergies with its strategic shareholders Nedbank (BBB/Negative) and Qatar National Bank (QNB, AA-/ Stable). Synergies come from cross-border banking as well as the sharing of technical skills, strong governance practices and risk management expertise. We believe that ETI has addressed its widely publicised corporate governance problems.

Fitch views ETI's asset quality as vulnerable given the bank's significant exposure to volatile emerging industries and low-rated sovereigns. Fitch expects the impaired loans ratio to remain stable in 2015 despite a challenging operating environment in Nigeria, on the back of further write-offs and restructuring of some oil and gas exposures. Fitch considers ETI's impaired loan loss reserve as weak (68.1% as of 1H15) given uncertainties relating to collateral valuation and potential issues in realising collateral.

Fitch views ETI's capacity to generate earnings as solid, although under pressure. We expect operating profitability to be affected in 2015 by currency depreciation and lower loan growth in Nigeria, although to date, ETI has proven its ability to deliver consistently strong and diverse earnings from its subsidiaries. Fitch considers that pressures on earnings will be likely offset by further cost efficiencies and limited loan impairment charges.

ETI's capital ratios are acceptable, considering its exposure to volatile sub-Saharan African countries, which are sources of high credit and operational risk. However, Fitch considers that ETI's diversified shareholders base is a strength for the group compared with peers. ETI's double leverage ratio is moderate and we expect this to remain stable given the group's focus on consolidating its position in sub-Saharan Africa.

ETI's funding and liquidity profile is adequate. Fitch views ETI's funding profile as sound and benefiting from a relatively stable retail deposit base and low deposit concentration compared to peers. Fitch expects liquidity to come under pressure - particularly in dollarised and commodity-reliant economies such as Nigeria.

The Stable Outlook reflects our expectations that the group's risk profile will remain stable and that diversification benefits from operating in a range of different economies will help to overcome pressure in Nigeria.

Support Rating and Support Rating Floor
ETI's Support Rating (SR) of '5' and Support Rating Floor (SRF) of 'No Floor' reflect Fitch's opinion that there is no reasonable assumption that sovereign support would be forthcoming for the group. Although Ecobank Nigeria, the group's largest subsidiary, could receive support from Nigeria, if required, this is unlikely to extend to ETI or other parts of the group. Similarly, Fitch believes that some of the group's other important subsidiaries could be supported by their respective national authorities, but such support is unlikely to extend to ETI itself. While Nedbank and QNB are long-term and strategic investors in ETI, their current stakes in the group and the limited integration of operations currently mean that institutional support cannot be relied upon. As a result, institutional support is not factored into the ratings.

RATING SENSITIVITIES
IDRs and VR
A material worsening in the operating environment could lead to a downgrade of ETI's VR and consequently its IDRs. Furthermore, weaker funding and liquidity profile, asset quality deterioration, increasing double leverage or any potential restriction in the ability of ETI's subsidiaries to upstream dividends could also trigger a downgrade. Upside potential to the VR is limited at present given the volatile and challenging environment in which ETI operates.

SR and SRF
The SR is unlikely to be upgraded or the SRF revised upwards unless there is a substantial change in assumptions around the increased propensity or ability of Nigeria to provide support to the entire group beyond the sole Nigerian operations.

The rating actions are as follows:
Long-term foreign currency IDR: affirmed at 'B'; Stable Outlook
Short-term foreign currency IDR: affirmed at 'B'
Viability Rating: affirmed at 'b'
Support Rating: affirmed at '5'
Support Rating Floor: affirmed at 'No Floor'.