- Moody’s upgrades Nigeria’s rating to ‘B3’ on fiscal reforms
International rating firm Fitch Ratings has said that the new ‘Nigeria First’ economic policy will unlock major growth opportunities for the Bank of Industry.
This was contained in the latest rating commentary on the development bank, which was issued by the rating company, where it affirmed BoI’s Long-Term Issuer Default Rating at ‘B’ and its National Long-Term Rating at ‘AAA(nga)’ with a stable outlook.
Earlier in May, the Federal Executive Council approved the ‘Nigeria First’ policy, aimed at strengthening the economy, prioritising local industries, and boosting the country’s industrial transformation.
This includes targeted funding for entrepreneurs and micro, small, and medium-sized enterprises, of which N50bn for grants, N75bn for MSMEs, and N75bn for manufacturing will be channeled through the BoI.
BoI is Nigeria’s main development bank, mandated with financing the country’s industrial sector and promoting financial inclusion and employment.
Fitch said, “BoI provides low-cost, long-term financing to micro, SMEs, and corporates through direct customer loans and customer loans granted at preferential rates and guaranteed by domestic banks.
“The bank’s strategy is linked to public policy, including the country’s industrialisation and import-substitution initiatives. The ‘Nigeria First’ economic policy will provide big growth opportunities for BoI.”
On the metrics of the development bank, Fitch said, “Given its development mandate, BOI targets some vulnerable segments of the economy. The bank lends to priority and emerging sectors typically underserved by other financial institutions. Nevertheless, adequate underwriting standards and risk controls mitigate risks associated with this type of lending as reflected in BOI’s sound asset quality metrics.
“BOI’s Stage 3 loans ratio remains well below the sector average of around 5%, despite targeting vulnerable segments of the economy. We view reserve coverage of Stage 3 loans as reasonable, while the loan book is highly collateralised. Profitability is healthy, despite not being a key objective for BOI.
“In 2024, return on equity improved from 2023, driven by strong gains on derivatives and lower impairment charges. The net interest margin compares favourably with that of commercial banks, as its lower funding costs offset lower loan yields.”
However, Fitch holds the view that the authorities’ ability to support BOI was limited, as indicated by Nigeria’s ‘B’ Long-Term IDR.
This view is despite its admission that the Nigerian authorities have a high propensity to support BoI, given its 99.9 per cent state ownership and well-established and clearly defined policy role.
In April, Nigeria’s Long-Term IDR was upgraded to ‘B’ on stabilised exchange rate, profitability, improvement in foreign-currency liquidity, and capital raisings are driving a recovery in the bank sector’s capitalisation.
Despite these positives, Fitch said that inflation remained high, regulatory intervention burdensome, and expiring forbearance on oil and gas loans will lead to an increase in impaired loans (Stage 3 loans under IFRS 9) ratios and prudential provisions.
Also, Moody’s Ratings has upgraded Nigeria’s long-term foreign currency and local currency issuer ratings to B3 from Caa1 and changed the outlook to stable from
positive.
In the rating action update shared on its website on Friday, Moody’s said it has also upgraded Nigeria’s foreign currency senior unsecured debt ratings to B3.
“The upgrade reflects significant improvements in Nigeria’s external and fiscal positions. A more flexible exchange rate has greatly bolstered external reserves. Concurrently, the removal of oil subsidies has alleviated budgetary spending pressures. Initially, these policy shifts posed inflationary risks, with, as a result, a potential for policy reversal.
“These risks have now diminished, with inflation and domestic borrowing costs showing nascent signs of easing, giving us confidence that the policy changes are becoming more entrenched. Moreover, tax reforms have started yielding results. Although vulnerabilities related to oil prices and the exchange rate remain, Nigeria’s more robust buffers support a B3 rating,” it stated.
Highlighting the rationale of the upgrade in outlook to stable from outlook, the credit rating agency said, “The stable outlook means we expect Nigeria’s recent progress on external and fiscal fronts to continue, though at a slower pace if oil prices fall.
“We assume current policies—like the flexible exchange rate—will stay in place, supported by a healthy balance of payments. Over the next few years, we expect debt to level off at 50 per cent of GDP, with interest payments taking up about 35 percent of government revenue.”
The new rating upgrade boosted the positive reviews that the country has been receiving, as earlier this month, the World Bank reported that Nigeria’s economy achieved its fastest growth in about a decade in 2024, driven by a strong fourth quarter and an improved fiscal position.
The World Bank said, “Nigeria’s new policy direction boosts international competitiveness, increases the attractiveness of Nigeria for domestic and foreign investments, and has started to reduce debt-related fiscal risks and reopen fiscal space.
“Yet, addressing deep-rooted constraints is key to sustaining stronger growth in Nigeria. This requires reducing trade barriers, facilitating trade, increasing access to a reliable power supply, and improving the business environment.”
However, it expressed concerns about the high inflation, which currently stands at 23.71 per cent.
On inflation, Moody’s said, “Nigeria’s high inflation reflects chronic macroeconomic imbalances and the side effects of the corrective policy measures taken over the last two years. Inflation has therefore been slow to temper, but signs of easing have now emerged.
“A significant update to the Consumer Price Index basket weights, the first since 2009, occurred at the end of 2024, bringing the inflation rate to 24.5% in January from 34.8 per cent in December 2024, complicating long-term trend analysis. Nonetheless, a slight decline in inflation since January indicates underlying pressures are easing.
“Food price inflation, a major driver of overall inflation and social risks, shows a clearer downward trend, falling for three consecutive months from 26.1 per cent in January to 21.3 per cent in April.
“Social risks peaked in the summer of 2024 with widespread protests over living costs. While risks persist, especially if the naira depreciates further amid falling oil prices, the pass through to inflation has been reduced alongside the external rebalancing.”