The similar thoughts of two rating agencies

We attended briefings this week hosted by two of the three principal ratings agencies. Moody’s Investors Service has maintained its sovereign rating for Nigeria at B2 in line with Standard & Poor’s B. Nigeria’s economic recovery, driven by a pick-up in the oil sector, has underpinned the stable outlook from both agencies. To summarize their common view, positive growth rates over the past three quarters have not been sufficient to improve GDP per capita and the recovery remains susceptible to oil price shocks. This is not very different from our own thinking. The third leading agency, Fitch, has Nigeria one notch higher at B+.


  • Moody’s estimates GDP growth this year at 2.8% y/y while S&P’s projection is 2.4% y/y., which is in line with our view. The relatively stable macroeconomic environment is the major driver for the growth projections.
  • Moody’s expects the oil price to fall within the US$45/b –US$65/b range this year while production is forecast to average 2.3mbpd between 2018 and 2020. We see Bonny Light at an average of US$68/b this year and US$71/b at end-December.
  • Both agencies made the point that fx liquidity has stabilised on account of the rebound in oil revenues and fx market liberalisation. External reserves have surged since 2017, exceeding US$45bn as at end-March 2018.
  • In their view, the increase in reserves is mainly due to the rebound in oil prices and production, the government’s external borrowing (Eurobonds) and a resumption of foreign capital inflows. Additionally, the CBN’s controls that limit specific imports have helped to maintain reserves at higher levels. Essentially, external vulnerabilities have diminished.
  • Moody’s publicly rates seven commercial banks which represent 68% of total assets in the Nigerian banking system. Its view is that operating conditions will continue to gradually improve over the next 12 to 18 months, but will remain challenging. Its outlook on Nigerian banks is largely stable.
  • It expects the sector’s non-performing loans (NPL) ratio to range between 15.5% and 18.0% in 2018. Given that NPLs are a lagging indicator, the previously low oil price, currency depreciation and sluggish economic growth experienced in 2017 are likely to generate new NPLs during 2018. However, the current macroeconomic stability would moderate ‘problem loan’ formation going forward.
  • The agencies share the same views on the potential downside risks to the sovereign rating. They include: exposure to oil price and production shocks, the interest payment burden and political risks, particularly as electioneering will kick off in earnest shortly.

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