Union Bank Placed Under 'Negative Watch' by Fitch For Six Months After CBN Sacks, Appoints Directors

• Union Bank has been placed on Rating Watch Negative by Fitch Ratings for Issuer Default Ratings, Viability Rating, and National Ratings
• This comes after the CBN dissolved the board and management of three Nigerian banks, including Union Bank
• The rating agency, however, warned that Further regulatory action, fines, or other regulatory findings could further lead to a downgrade

Legit.ng journalist Zainab Iwayemi has over three years of experience covering the Economy, Technology, and Capital Market.

Fitch Ratings has placed Union Bank of Nigeria PLC's Issuer Default Ratings (IDRs), Viability Rating (VR), and National Ratings on Rating Watch Negative (RWN).

Companies that are placed on RWN have circumstance(s) that might cause a rating agency to downgrade its credit rating in the near future.

The rating agency reported that this became necessary following the Central Bank of Nigeria's (CBN) announcement on 10 January that it had dissolved the board and management of three Nigerian banks, including Union Bank.

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Nigerian bank updates customers as new CEO resumes after CBN shake-up

The bank cited regulatory non-compliance, corporate governance failure, disregarding the conditions under which banking licenses were granted, and involvement in activities that threatened financial stability, among other infractions.

Legit.ng reported that the board has since appointed new executives, including chief executive officers, to oversee the affairs of the banks.

Rating Watch Negative

Fitch reported that the uncertainty surrounding the CBN's intervention's history, the possibility of additional regulatory actions, and the detrimental effects on Union Bank’s standalone credit profile tied to corporate governance risks and liquidity pressure from possible funding instability are all reflected in the RWN.

Once the CBN's intervention and its effects on the bank's standalone credit profile are clearer, Fitch anticipates resolving the RWN in six months.

Downgrade looms

Further regulatory action, such as imposing restrictions on Union Bank's operations, fines, or other regulatory findings (like weaker asset quality than it initially reported), could result in a downgrade (and possible resolution of the RWN). These would cause significant losses and the bank's capital to be eroded.

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Access, GTB, UBA, other banks take advantage of CBN’s decision to remove deposit limit on savings

The downgrade may also result from the bank’s financial instability, such as a deposit run or a situation in which the bank runs out of new liquidity sources.

Nigerian Bank Sends Message to Customers on Deposits As CBN Sacks All Its Directors

Legit.ng reported that Union Bank has sent a clear message to customers about the funds in their bank accounts amid ongoing management reshuffling by the CBN.

The changes by the CBN caught Nigerians' attention and forced the 106-year-old bank to send a reassuring message.

The message seen by Legit.ng reads,

"Your funds are safe with us! Dear Customer. As you may already know, CBN, in its efforts to ensure a stable and effective banking sector, has dissolved the Board of Union Bank of Nigeria and appointed new executives to oversee its operations.

Source: Legit.ng