Fitch flags breach of minimum capital adequacy ratio since 2024 devaluation

At the core of the downgrade is Ecobank Nigeria’s ongoing breach of the 10% minimum Capital Adequacy Ratio (CAR) mandated by the Central Bank of Nigeria (CBN). According to Fitch, the bank has failed to restore compliance more than a year after the February 2024 naira devaluation, which significantly eroded its capital buffers.

“The downgrade of the VR reflects Fitch’s view that the bank has suffered a material capital shortfall… despite extensive regulatory forbearance,” the agency stated. “Fitch believes ENG will need to strengthen capitalisation through extraordinary capital support or will need to continue operating with regulatory forbearance regarding its material capital shortfall due to its weak profitability and extremely high credit concentrations and problem loans.”

This, Fitch noted, constitutes a “bank failure” under its Bank Rating Criteria, even though the bank continues to meet current liquidity obligations.

Fitch also lowered the Shareholder Support Rating (SSR), citing delays in capital injections from Ecobank’s parent entity, ETI, headquartered in Togo. Despite earlier indications of support, the group has yet to provide the substantial capital relief required to address Ecobank Nigeria’s capital shortfall.

“The downgrade of the SSR reflects Fitch’s view that the delay in Togo-based Ecobank Transnational Incorporated providing a substantial capital injection is indicative of a weak record of timely capital support,” the statement said. “There is no reasonable assumption of liquidity support being forthcoming to avoid defaulting on all senior obligations.”

This reduced expectation of group-level backing calls into question the strength and reliability of cross-border banking support structures, particularly for subsidiaries in high-risk, volatile macro environments like Nigeria.

Despite these fundamental weaknesses, Fitch affirmed Ecobank Nigeria’s Long-Term IDR at ‘CCC’, maintaining that the bank’s default risk, while serious, has not materially worsened in the near term.

This is largely due to the bank’s successful tender offer earlier in 2025 to repurchase $150 million of its $300 million Eurobond, which also resulted in the removal of a key covenant that could have triggered early repayment upon breach of capital adequacy ratios.

“Bondholders agreed to remove a covenant referencing a CAR breach, and therefore ENG has avoided a potential acceleration of the Eurobond,” Fitch noted.

The remaining $150 million Eurobond matures in February 2026, and Fitch believes the bank has enough internal liquidity to meet this obligation. However, it flagged foreign-currency liquidity as weak by domestic banking standards, especially because a large share of foreign-currency deposits are less stable term deposits that could be withdrawn under stress conditions.

Fitch’s concerns go beyond just capital shortfalls. The rating agency pointed to high credit concentrations, a large stock of problem loans, and weak profitability as persistent structural issues that have eroded Ecobank’s financial resilience.

While Nigerian regulators have provided regulatory relief to allow banks to operate below minimum capital thresholds in the wake of economic shocks such as currency devaluation and inflation, Fitch emphasized that these measures cannot substitute for sustainable capital levels.

“ENG has made minimal progress in restoring compliance with the capital adequacy ratio (CAR), and the shortfall is especially significant when the effects of regulatory forbearance are excluded,” the report said.

The rating agency believes that without a major capital injection, Ecobank Nigeria is unlikely to regain compliance with CBN requirements or exit the forbearance regime, raising questions about the long-term viability of the business.

The downgrade of the National Long-Term Rating to ‘B+(nga)’ from ‘BB-(nga)’ reflects a drop in Ecobank Nigeria’s relative standing compared to other Nigerian issuers.

According to Fitch, this indicates weakening creditworthiness within Nigeria’s banking sector, and could affect market confidence, particularly from domestic institutional investors and counterparties.

While Ecobank Nigeria remains operational, the risk of reputational spillover and potential deposit flight could become more pronounced if investor concerns persist or if support from ETI fails to materialize.

In its summary, Fitch stated that although the risk of immediate default has not increased significantly, the bank’s structural weaknesses and lack of capital reinforcement present a “real possibility” of future default, particularly if market or regulatory conditions tighten further.

While Ecobank Nigeria is expected to meet upcoming financial obligations, including its 2026 Eurobond, Fitch’s downgrade sends a clear message: without swift action to recapitalize, restore profitability, and reduce problem loan exposure, the bank’s long-term solvency remains at risk.