OREANDA-NEWS. Fitch Ratings has published United Bank for Africa Cameroon's (UBA Cameroon) Long-term Issuer Default Rating (IDR) of 'B-'. The Outlook is Stable. A full list of rating actions is at the end of this rating action commentary.

UBA Cameroon is a banking subsidiary of the Nigeria-based United Bank for Africa Plc (UBA, B+/Negative/b).

KEY RATING DRIVERS
IDR, VR, SUPPORT RATING
UBA Cameroon's Long-Term IDR and Stable Outlook reflect the bank's standalone strength as defined by its Viability Rating (VR) and is also underpinned by Fitch's view of potential support from its Nigerian parent, UBA.

UBA Cameroon's VR is constrained by its relatively weak operating environment (Cameroon; B/Stable). It also takes into account its limited franchise (less than 5% loans market shares at end-2014), its vulnerable asset quality and limited capital buffer, as well as its strong profitability and adequate funding and liquidity.

UBA Cameroon's impaired loans ratio (2.6% at end-2014) compares well with sub-Saharan peers but the reserve coverage of 30% ratio is low. The bank is exposed to event risk due to very high single obligor loan concentration, despite some of them being 0% risk-weighted. A significant portion of the bank's loan book is to the oil (around 30% of the loan book at end-1H15) and retail (around 35%) sectors, which Fitch considers higher risk exposures.

We consider UBA Cameroon's Basel I Tier 1 capital ratio (13.8% at end-1H15) weak, given that it reports its regulatory capital ratios by applying a 0% risk weight on government-related exposures, which positively impacts its capital ratios. Fitch views UBA Cameroon's tangible common equity to tangible assets (9.5% at end-1H15) as low considering the bank's risk profile with large loan concentration, significant exposure to higher risk sectors and to low or non-rated sovereigns.

Profitability is strong, although Fitch expects historically aggressive loan growth and expansion of the retail segment to weigh on profitability in the near term.

Funding volatility stemming from corporate deposits is offset by solid liquidity and ordinary support from UBA.

The implicit support level of 'b-' and Support Rating (SR) of '5' are derived from UBA's VR of 'b' as an anchor rating, indicating that support is likely to come from the parent's resources rather than indirectly from the Nigerian sovereign. Nigerian sovereign support, which drives UBA's IDR of B+, is unlikely, in Fitch's view, to extend to overseas subsidiaries. Fitch does not consider UBA Cameroon to be a core subsidiary given its limited role and overall contribution to UBA (less than 3% of income and assets). However, it is still viewed by the group as an important hub in prospective CEMAC region targeting local major corporates and serving local operations of UBA Nigeria's core clients. In addition, given UBA Cameroon's small size, the potential cost of support should not be too onerous for the parent, while failing to support it could cause reputational damage for the group.

RATING SENSITIVITIES
IDR, VR, SR
An upgrade of UBA Cameroon's Long-Term IDR would be driven by a stronger company profile, a sustained improvement in asset quality metrics and reduced concentration in both its loan book and depositor base. Its IDR could also be upgraded if synergies increased or it assumed a greater role in the UBA group, or if UBA's VR was upgraded.

A downgrade of UBA Cameroon's IDR would require a simultaneous downgrade of the bank's VR and reduced probability of support from UBA, which Fitch views as very unlikely.

UBA Cameroon's SR is sensitive to any change in assumptions around the propensity or ability of UBA to provide timely support to the bank. The SR could be upgraded following an upgrade of UBA's VR to 'b+' or following increased synergies and a greater role of the subsidiary within the UBA group.