download report - UBA Plc

United Bank for Africa Plc
Nigeria Bank Analysis August 2013
Security class Rating scale Rating Rating outlook Expiry date
Long term National AA- (NG)
Stable 08/2014
Short term National A1+ (NG)
Long term International BB- Stable 08/2014
Financial data:
(US$’m Comparative)
31/12/11 31/12/12
NGN/US$ (avg.) 157.4 160.1
NGN/US$ (close) 154.1 156.6
Total assets 12,323.6 14,433.1
Primary capital 1,326.7 1,229.8
Secondary capital 347.2 343.3
Net advances 4,199.8 4,389.8
Liquid assets 2,687.9 4,482.1
Operating income 617.8 994.1
Profit after tax (55.1) 321.5
Market cap*
US$1,603m
Market share** 10.6%
*As at July 29, 2013.
* * Based on industry assets as at December 2012.
Rating history:
Initial rating (August 2000)
Long term: AA (NG)
Short term: A1+ (NG)
Rating outlook: Stable
Last rating (August 2012)
Long term: AA- (NG)
Short term: A1+ (NG)
Long term international scale: BB-
Rating outlook: Stable
Related methodologies/research:
Banking Criteria (Updated 2013)
Banking Sector Bulletin (December 2012)
Previous Rating Reports (Up to 2012)
GCR contacts:
Primary Analyst
Femi Atere
Analyst
femi@globalratings.net
Committee Chairperson
Dirk Greeff
Head: Financial Institution Ratings
dgreeff@globalratings.net
Analyst location: Lagos, Nigeria
Tel: +234 1 462-2545
Website: www.globalratings.net
Summary rating rationale
The ratings are based on the following key factors:
• Cognisance was taken of United Bank for Africa Plc’s (“UBA”
or “the bank”) strong competitive position, leveraged on its
longstanding track record, strong brand recognition, wide
network coverage and its experienced management team. The
bank’s capital adequacy ratio is considered adequate at 23.5%.
However, this may be weakened by the new risk weighting
standards and the bank’s plans to ramp up advances growth.
• The bank’s bad debt ratio further improved to 1.9% (F11: 2.5%),
underpinned by the clean up exercise in F11 and further sales of
impaired assets to the Asset Management Corporation of Nigeria
(“AMCON”) in F12, totalling N33bn. Looking forward, it may,
however, be difficult to maintain this position due to: i)
AMCON’s suspension on the purchase of impaired loans, ii) the
bank’s aggressive loan growth plans in a market that has not
quite settled, and iii) the uncertainty around monetary policy.
• Overall, UBA recorded an improved performance, reversing the
N1.1bn loss in F11, to post a total comprehensive income of
N55.5bn in F12. Gross earnings grew by 34.2% to N220.1bn
(F11: N163.7bn), driven by the bank’s investments in high
interest yielding assets and improved performance from its other
African banking subsidiaries. The net interest margin improved
to 9.4%, held up by a reduction in the bank’s cost of funds and
better assets pricing. Further, backed by cost cutting measures,
efficiency also improved. Resultantly, the cost to income ratio
ended the period lower at 64.5% (F11: 109.1%), while ROaA
and ROaE improved to 2.7% and 32.3% respectively.
• Though the bank’s liquidity trackers met all prudential standards,
concern is raised over the size of the short term liquidity gap (3x
capital at year-end) – this is substantially higher than GCRs
base comfort level, as well as international banking benchmark
standards (1x capital in the

Organisational profile
Corporate summary 1
UBA is a fully-fledged commercial bank with an
international focus, offering a wide array of banking
and pension fund custody services to its customers.
Apart from Nigeria, the bank has a presence in 18
African countries, as well as the United Kingdom, the
United States of America and France. The bank has
grown to become one of the largest banks in sub-
Sahara Africa with over 700 branches across all its
jurisdictions.
Ownership structure
Apart from the UBA Staff investment trust scheme
and Stanbic Nominees Nigeria Ltd (“SNNL”), no
single shareholder held more than 5% of the bank’s
issued shares as at 31 December 2012. Overall, the
bank’s shareholding structure is well spread across
both local and foreign investors.
Table 1: Shareholding Structure
% Holding
Stanbic Nominees Nig. Ltd 11.0
UBA Staff Investment Trust Scheme 7.6
Consolidated Trust Funds Ltd 4.7
The Bank of New York Mellon 4.4
Heirs Holdings Limited 3.4
STH Limited 2.6
Bank of America Merrill Lynch 2.3
International Finance Corporation 1.8
Poshville Investment Limited 1.7
African Development Bank 1.6
Others 58.9
Total 100.0
Source: AFS.
Strategy and operations
Having spun-off its non-banking subsidiaries
internally, in line with the Central Bank of Nigeria’s
(“CBN”) requirements, the old UBA Group is now
restructured into 4 standalone entities: UBA, Africa
Prudential Registrar Plc, Afriland Properties Plc and
UBA Capital Plc. As the group’s core-banking entity,
UBA now controls all 18 African banking
subsidiaries, the UBA New York branch, UBA
Capital Europe, UBA Pension Custodian and UBA
FX Mart Limited (all permitted under the new
banking regulations). To reflect the new business
model, the organisational structure was reviewed
with a focus on human capacity building and deeper
market penetration. In this regard, additional regional
bank heads were appointed to enhance control, as
well as to mobilise low-cost deposits at the retail
segments. Also, a global account management
framework was established to monitor the bank’s
operations at a granular level. Overall, the bank
continued to pursue its core strategic focus.
In 2012, UBA operated with 11,529 employees, over
5,303 point-of-sales units (“POS”) and about 1,500
Automated Teller Machines (“ATMs”).
Governance structure
UBA continued to improve on its corporate
governance structure, adhering to the provisions of
the CBN’s Code of Corporate Governance for Banks
and the Securities and Exchange Commission’s
(“SEC”) Code for Publicly Quoted Companies. The
bank’s Board of Director is made up of 18 members,
8 of which are Executive Directors, with the
remainder serving as Non-Executive Directors.
Subsequent to end-2012, 2 Executive Directors
(Rasheed Olaoluwa & Ifeatu Onejeme) retired from
the board.
Testing description
Findings
Number of non-executive directors 10/18 (Incl. chairman)
Tenure of non-executive directors 3 years each/4 cycles
Independent directors Yes, 2
Number of board committees 6
Int. audit & compliance function Yes, independent/free units
External auditors & rotation policy PWC/10 years tenure
Board evaluation
Akintola Williams Deloitte
Internal & external practice guides Yes, group wide rules applied
Financial reporting
The bank’s financial statements were prepared in
accordance with International Financial Reporting
Standards (“IFRS”). The annual and interim reports
are relatively detailed and transparent. The external
auditor, PricewaterhouseCoopers, issued a clean
report on the financial statements, as at year end-
2012.
Operating environment 2
Industry overview
Competitors in the Nigerian banking space include
commercial banks, merchant banks, development
financial institutions, specialised financial institutions
and non-bank financial institutions. The full take-off
of the newly introduced stratified banking model in
2012 has dramatically re-shaped the country’s
commercial banking operating universe. This
segment presently comprise: 10 international banks
(including UBA), 9 national banks and 2 regional
banks, including Heritage Bank Limited (which
commenced operations in 2013). Three of the
National Banks, namely: Enterprise Bank Limited,
Keystone Bank Limited and Mainstreet Bank Limited
are presently under AMCON’s management. In
addition, First Bank of Nigeria Plc, First City
Monument Bank Plc, Stanbic IBTC Bank Plc and
Union Bank of Nigeria Plc now operate as
subsidiaries of Nigerian financial services companies,
1 Refer to previous United Bank for Africa Plc reports for a detailed
2 Refer to GCR’s 2012 Nigeria Banking Industry Bulletin for a review
background.
of all relevant economic, regulatory and/or industry developments.
Nigeria Bank Credit Rating Report | Public Credit Rating Page 2

in line with the new banking rules which, inter-alia
prohibits banks from owning non-core subsidiaries.
Although yet to resume its banking operations, the
banking license of Savannah Bank Limited was
restored. Assets quality improved across the sector in
2012. However, this is mainly due to the mop up of
banks’ major toxic loans by AMCON. It may,
however, be difficult to maintain the NPL ratio at this
level through 2013 due to: (i) the temporary
suspension of AMCON’s mandate, and (ii) the
declining returns on securities, which has now
stimulated banks’ appetite for loan assets creation.
Competitive position
With its longstanding record, UBA ranks as the third
largest bank in terms of total assets and second
largest with respect to branch network within the
Nigeria banking sector. As such, its competitive
advantage remains strong. The bank is compared
against several of its peers in Table 2 below.
Financial profile
Funding composition
UBA’s assets were funded by capital (10.9%),
customer deposits (78.6%), other borrowings (5.1%)
and other liabilities (5.4%).
Customer deposits and interbank funding:
Leveraging off the bank’s wide branch network and
brand recognition, total deposits grew by 21.3% to
N1.8tn (F11: N1.5tn) in F12. In spite of the upward
pressure on interest rate towards year-end, the bank’s
average cost of funds came in at 3.3% (one of the
lowest in the market). Of the total deposits, retail
constituted 29%, while corporates and interbank
borrowings made up 67.7% and 3.3% respectively.
The bank displayed a moderately concentrated
liability pool with the single and twenty largest
deposits, accounting for 5.3% and 14.3% of the
combined pool. By maturity, a significant portion of
the bank’s funding is concentrated in the less than 1-
month bucket. UBA has forecasted a 39% growth in
deposits for F13, driven largely by its enhanced retail
initiatives and other products.
Table 3: Deposit Book Characteristics
By type: % %
Demand 29.0 Term 51.6
Savings 16.1 Interbank borrowings 3.3
Concentration:
Single largest 5.3 Ten largest 12.3
Five largest 9.7 Twenty largest 14.3
Maturity:
12 months 3.8
Source: AFS.
Deposits were conserved in F12, with a larger
percentage invested in high interest yielding assets
(mainly money market securities), thus accounting
for the low loan to deposits ratio of 38%.
Capital and money market funding:
Underpinned by retained earnings, UBA’s Tier 1
capital grew by 27.5% to N192.5bn, bringing the
total (absolute) capital to assets ratio up to 8.5%.
Furthermore, the bank’s risk weighted capital
adequacy ratio improved to 23.5% in F12 (F11:
21.7%), ending well above the prudential
requirement of 15% for an international bank.
The bank’s Tier-2 capital comprised subordinated
bonds (Series 1 & 2 with 7-years maturity each) of
N53.7bn. The series’ were issued in 2010 and 2011
with a coupon of 13% and 14% respectively, being
part of the bank’s N400bn Medium Term Note
Programme (“MTN”). Based on the quarterly returns
from trustees, the series’ are duly performing.
The bank’s remaining borrowings stood at N114.5bn
at year-end 2012, comprising on-lending facilities
from the African Development Bank, CBN, Bank of
Industry, AFREXIM, SCB and HSBC, in proportion
20.7%, 31.9%, 12.1%, 12.6%, 21.9% and 0.8%
respectively. Of these facilities, the short-term
funding pool constituted a combined 46.7%.
Table 2: Competitive position*
UBA vs. selected banks
Year end 31 December 2012
FBN Zenith UBA Access GTBank
Capital (N’bn) 391.1 463.0 246.2 240.3 283.4
Total assets (N’bn)† 3,076.4 2,566.1 2,260.2 1,719.9 1,688.7
Net loans (N’bn) 1,563.0 989.8 687.4 608.6 783.9
Profit after tax (N’bn) 94.4 98.5 55.5 35.1 86.4
Capital/assets (%) 12.7 18.0 10.9 14.0 16.8
Liquid & trading assets/total short-term funding (%) 29.8 49.6 33.0 27.8 46.5
Gross bad debt ratio (%) 2.6 3.1 1.9 5.3 3.3
Net interest margin (%) 10.0 8.6 9.4 11.3 10.3
Cost ratio (%) 65.0 52.4 64.5 61.1 42.6
ROaE (%) 24.5 23.0 32.3 16.2 33.6
ROaA (%) 3.2 4.1 2.7 2.1 5.3
* Ranked by total assets. † Total assets excludes client balances in respect of foreign currency letters of credit.
Nigeria Bank Credit Rating Report | Public Credit Rating Page 3

Liquidity positioning
Though the bank’s liquidity seems reasonably
managed, there was a gap of N571.4bn in the less
than 1-month maturity bucket of the bank’s
contractual maturity profile (equating to 3x capital,
which is considered extremely high and a standard
risk flag under GCR’s methodology). Nevertheless,
the bank covers liquidity shortfalls via its treasury
bills, other short term marketable securities and
available credit lines from other banking institutions.
The liquidity ratio stood at 69.8% at FYE12, well
above the CBN’s minimum requirement of 30%.
Credit risk (strategic overview)
Risk management
Credit risk is inherent in the bank’s loan portfolio,
interbank placements and investments. UBA’s credit
risk management processes are considered
satisfactory and appears to be functioning as
intended.
UBA’s total assets grew by 19% to N2.3tn in F12.
The asset mix showed a substantial increase in interbank
balances, driven by the high interbank rate
(hence, a lower risk, supportive means to capture
available yield in the market). Furthermore, the
increase in the cash reserve ratio (“CRR”) from 8%
to 12% in F12 saw the mandatory reserve with the
CBN increase by 46% in absolute terms, putting
pressure on the bank’s available funds for lending.
Net advances recorded a lower growth of 6.2%, with
the bank focusing on recovery, while investments
declined by 5.7%. The investment pool (mainly
available for sale and held to maturity investment
securities) is made-up of treasury bills, equity
investments and bonds, mostly risk free assets.
Table 4: Asset Mix
F11
F12
N’bn % N’bn %
Cash & liquid assets* 414.2 21.8 701.9 31.1
Cash 173.2 9.1 162.4 7.2
Liquidity reserve deposits 81.8 4.3 119.7 5.3
Treasury bills and bonds 1.3 0.1 0.5

consideration must be given to the artificial element
associated with the market wide sell-off of bad loans.
Overall, provisioning was adequate, with the arrears
coverage ratio standing at 78.4% (F11: 70.4%).
GCR’s concern, however, is on the sustainability of
the asset quality position as the bank gears up for
loan growth in F13, considering AMCON’s decision
to suspend its uptake of any further loans.
Table 6: Asset Quality (N’bn) F11 F12
Gross advances 672.2 703.4
Loan Classification:
Performing 655.3 690.0
Impaired 16.9 13.4
Provision for impairment (25.0) (16.0)
Individually impaired (13.1) (5.4)
Collectively impaired (11.9) (10.5)
Net NPLs negative negative
Select asset quality ratios:
Gross NPLs ratio (%) 2.5 1.9
Net NPLs ratio (%) negative negative
Net NPLs/Capital (%) negative negative
Source: AFS.
Default losses are moderated by the fact that nearly
the entire book is secured in some form or the other.
However, given the cumbersome judicial process to
liquidate security and the associated time lags, little
credence is given to security in this analysis.
Financial performance and prospects
A 4-year financial synopsis is reflected at the back of
this report, supplemented by the commentary below.
Supported by improved asset quality and growth in
non-interest income (with enhanced contributions
from its other African subsidiaries), UBA’s gross
earnings grew by 34.2% to N220.1bn (F11:
N163.7bn). Growth in net interest income was driven
by enhanced mobilisation of low-cost funds, as well
as transacting in high-interest yielding assets and
investments. Hence, the bank’s net interest margin
improved to 9.4%.
operating expenses, UBA’s focus will be on
streamlining expenses, growing contributions from
all business activities and improving low-cost deposit
mobilisation through value-added products. While
recognising the intensity of the competitive
landscape, going forward, the bank will continue to
build on its transformation agenda to strengthen its
position.
Table 7: Budget vs.
interim results
Actual Budget Actual
F12 F13 1Q- F13
(N’bn) (N’bn) (N’bn)
% of
budget*
Statement of comprehensive income
Net interest income 91.6 99.4 27.2 109.3
Other income 67.5 80.6 17.5 86.7
Total income 159.2 180.0 44.6 99.1
Impairment charge (4.6) (4.0) (0.2) 20.0
Operating expenses (102.6) (96.4) (27.3) 113.3
Profit before tax 52.0 79.7 17.2 86.3
Statement of financial position
Deposits 1,777.8 2,477.1 2,017.0 81.4
Advances 687.4 921.9 664.2 72.1
Total assets 2,272.9 3,225.2 2,434.4 75.5
Tier I capital 192.5 321.6 209.4 65.1
* Annualised. Source: AFS.
Based on budget, UBA plans to increase net interest
income by 8.5%, with sizeable growth from noninterest
income. Total operating expenses is expected
to fall with the cost reduction measures, while
impairments will increase on account of loan growth,
leading to a 53.2% rise in pre-tax profit. At 1Q-F13,
pre-tax profit stood at 86%, underperforming the
budget (on an annualised basis). Meanwhile,
deposits, capital and total assets grew by 13.5%,
8.8% and 7.7% respectively but advances fell by
3.4%. While cognisance is taken of the slow
economic activities in every 1Q in Nigeria (due to
uncertainty surrounding budget implementation),
GCR expects earnings to pick-up towards year-end.
With improved earnings from non-interest
transactions, total operating income recorded a 64%
growth. Operating expenses were well managed
across all lines, supported by cost cutting measures
and a reduction in the impairment charge. Thus, the
bank’s cost to income ratio improved to 64.5% in
F12 (F11: 109.1%). Overall, UBA recorded an
improved performance, reversing the N1.1bn loss in
F11, to post a total comprehensive income of
N55.5bn in F12. Consequently, RoaA and RoaE
ended up at 2.7% and 32.3% respectively.
As earnings rely mainly on the bank’s ability to
maintain a low cost of funds and minimise its level of
Nigeria Bank Credit Rating Report | Public Credit Rating Page 5

Year end: 31 December
Statement of Comprehensive Income Analysis Dec. 09
NGAAP
Dec. 10 Dec. 11
IFRS
Dec. 11 Dec. 12
Interest income 177 848 117 745 121 422 113 590 150 003
Interest expense (59 659) (46 969) (46 125) (45 423) (58 386)
Net interest income 118 189 70 776 75 297 68 167 91 617
Other income 63 716 67 303 63 402 29 075 67 545
Total operating income 181 905 138 079 138 699 97 242 159 162
Impairment charge (39 839) (18 213) (22 628) (17 738) (4 560)
Operating expenditure (128 404) (103 981) (107 716) (106 104) (102 592)
Exceptional items (7 025) (12 666) (36 851) - -
Net profit before tax 6 637 3 219 (28 496) (26 600) 52 010
Tax (4 262) (2 621) 18 849 17 935 (533)
Net profit after tax 2 375 598 (9 647) (8 665) 51 477
Profit/(loss) from discontinued operations - - - 1 864 3 289
Other after-tax income / (expenses) (262) 70 (827) 5 680 764
Net income 2 113 668 (10 474) (1 121) 55 530
Statement of Financial Position Analysis
Subscribed capital 124 423 124 423 124 423 124 423 124 423
Reserves (incl. net income for the year) 62 406 55 003 45 610 26 517 68 044
Total capital and reserves 186 829 179 426 170 033 150 940 192 467
Bank borrowings (incl. deposits, placements & REPOs) 15 807 7 456 17 201 33 459 111 280
Deposits 1 244 742 1 245 750 1 444 988 1 445 822 1 652 674
Short-term funding (< 1 year) 1 260 549 1 253 206 1 462 189 1 479 281 1 763 954
Deposits 908 21 421 - - 67 334
Other borrowings 14 760 82 144 192 123 53 500 53 719
Long-term funding (> 1 year) 15 668 103 565 192 123 176 591 182 073
Payables/Deferred liabilities 77 779 66 417 97 082 92 257 121 735
Other liabilities 77 779 66 417 97 082 92 257 121 735
Total capital and liabilities 1 540 825 1 602 614 1 921 427 1 899 069 2 260 229
Balances with central bank 13 325 12 262 81 151 81 789 119 697
Property, Plants and Equipments 73 042 65 200 52 852 55 618 70 746
Receivables/Deferred assets (incl. zero rate loans) 60 305 35 331 58 651 59 797 119 353
Non-earnings assets 146 672 112 793 192 654 197 204 309 796
Short-term deposits & cash 35 386 30 442 44 895 173 221 162 353
Loans & advances (net of provisions) 636 793 628 811 689 625 647 191 687 435
Bank placements 481 757 312 542 282 397 157 842 419 371
Marketable/Trading securities 42 035 123 455 175 525 1 303 457
Equity investments 188 407 384 453 525 975 722 308 680 817
Investments in subsidiaries/associates 9 775 10 118 10 356 - -
Total earning assets 1 394 153 1 489 821 1 728 773 1 701 865 1 950 433
Total assets 1 540 825 1 602 614 1 921 427 1 899 069 2 260 229
Contingencies 689 479 654 360 952 798 372 047 401 312
Ratio Analysis (%)
Capitalisation
Internal capital generation 1.1 0.4 n.a. n.a. 28.9
Total capital / Net advances + net equity invest. + guarantees 12.3 10.8 7.8 8.7 10.9
Total capital / Total assets 12.1 11.2 8.8 7.9 8.5
Liquidity†
Net advances / Deposits + other short-term funding 50.5 49.3 47.2 43.8 37.5
Net advances / Total funding (excl. equity portion) 49.9 46.3 41.7 39.1 35.3
Liquid & trading assets / Total assets 36.3 29.1 26.2 17.5 25.8
Liquid & trading assets / Total short-term funding 44.4 37.2 34.4 22.5 33.0
Liquid & trading assets / Total funding (excl. equity portion) 43.8 34.4 30.4 20.1 29.9
Liquid & trading assets / Total contingencies (x cover) 44.4 37.2 34.4 22.5 33.0
Asset quality
Impaired loans / Gross advances 7.9 8.8 3.7 2.5 1.9
Total loan loss reserves / Gross advances 6.3 6.7 3.5 3.7 2.3
Bad debt charge (income statement) / Gross advances (avg.) 7.2 2.8 3.4 2.7 0.7
Bad debt charge (income statement) / Total operating income 21.9 13.2 16.3 18.2 2.9
Profitability
Net income / Total capital (avg.) 1.1 0.4 n.a. n.a. 32.3
Net income / Total assets (avg.) 0.1 0.0 n.a. n.a. 2.7
Net interest margin 7.5 6.1 6.6 7.0 9.4
Interest income + com. fees / Earning assets + guarantees (a/avg.) 6.3 3.8 3.7 2.4 5.7
Non-interest income / Total operating income 35.0 48.7 45.7 29.9 42.4
Non-interest income / Total operating expenses (or burden ratio) 49.6 64.7 58.9 27.4 65.8
Cost ratio 70.6 75.3 77.7 109.1 64.5
OEaA (or overhead ratio) 8.4 6.6 6.1 6.1 4.9
ROaE 3.9 7.3 15.1 (0.7) 32.3
ROaA 0.5 0.8 1.5 (0.1) 2.7
Nominal growth indicators
Total assets 1.8 4.0 19.9 18.5 19.0
Net advances 51.0 (1.3) 9.7 2.9 6.2
Shareholders funds (0.7) (4.0) (5.2) (15.9) 27.5
Total capital and reserves (0.7) (4.0) (5.2) (15.9) 27.5
Deposits (wholesale) (1.0) 1.7 14.0 14.1 19.0
Total funding (excl. equity portion) 1.4 6.3 21.9 22.0 17.5
Net income 95.8 (60.5) (1 668.0) (267.8) 5 053.6
† Please note that for these raos, liquid assets exclude the statutory reserve balance
United Bank for Africa Plc
(Naira in millions except as noted)
Nigeria Bank Credit Rating Report | Public Credit Rating Page 6

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based solely on the merits of the rated entity, security or financial instrument being rated; c.) such rating was an independent evaluation of
the risks and merits of the rated entity, security or financial instrument; and d.) the validity of the rating is for a maximum of 12 months, or
earlier as indicated by the applicable credit rating document.
The ratings were solicited by, or on behalf of, United Bank for Africa Plc, and therefore, GCR has been compensated for the provision of the
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The credit ratings above were disclosed to United Bank for Africa Plc with no contestation of/changes to the ratings.
The information received from United Bank for Africa Plc and other reliable third parties to accord the credit rating included the latest
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year detailed budgeted financial statements, most recent year-to-date management accounts, reserving methodologies and capital
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Nigeria Bank Credit Rating Report | Public Credit Rating Page 7

GCR
GLOBAL CREDIT RATING CO.
Local Expertise • Global Presence
RATING DEFINITIONS
Long term debt
Investment grade
AAA Highest credit quality. The risk factors are negligible,
being only slightly more than for risk free
government bonds.
AA+
AA
AA-
A+
A
A-
BBB+
BBB
BBB-
Very high credit quality. Protection factors are very
strong. Adverse changes in business, economic or
financial conditions would increase investment risk,
although not significantly.
High credit quality. Protection factors are good.
However, risk factors are more variable and greater in
periods of economic stress.
Adequate protection factors and considered sufficient
for prudent investment. However, there is
considerable variability in risk during economic
cycles.
Non-investment grade
BB+
BB
BB-
B+
B
B-
Below investment grade but capacity for timely
repayment exists. Present or prospective financial
protection factors fluctuate according to industry
conditions or company fortunes. Overall quality may
move up or down frequently within this category.
Below investment grade and possessing risk that
obligations will not be met when due. Financial
protection factors will fluctuate widely according to
economic cycles, industry conditions and/or company
fortunes.
CCC Well below investment grade securities.
Considerable uncertainty exists as to timely payment
of principal or interest. Protection factors are narrow
and risk can be substantial with unfavourable
economic/industry conditions, and/or with
unfavourable company developments.
DD
Short term debt
High Grade
Defaulted debt obligations. Issuer failed to meet
scheduled principal and/or
Interest payments.
A1+ Highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or
access to alternative sources of funds, is outstanding,
and safety is just below that of risk-free treasury bills.
A1 Very high certainty of timely payment. Liquidity
factors are excellent and supported by good
fundamental protection factors. Risk factors are
minor.
Good Grade
A1- High certainty of timely payment. Liquidity factors
are strong and
GLOBAL supported by good fundamental
CREDIT RATING CO.
protection factors. Risk factors are very small.
A2
Satisfactory Grade
A3
Good certainty of timely payment. Liquidity factors
and company fundamentals are sound. Although
ongoing funding needs may enlarge total financing
requirements, access to capital markets is good. Risk
factors are small.
Satisfactory liquidity and other protection factors
qualify issues as to investment grade However, risk
factors are larger and subject to greater variation.
Non-investment Grade
B
Default
C
Speculative investment characteristics. Liquidity is
not sufficient to insure against disruption in debt
service. Operating factors and market access may be
subject to a high degree of variation
Issuer failed to meet scheduled principal or interest
payments.
Claims paying ability
Secure
AAA
AA+
AA
AA-
A+
A
A-
BBB+
BBB
BBB-
BB+
BB
BB-
B+
B
B-
CCC
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Highest claims paying ability. The risk factors are
negligible.
Very high claims paying ability. Protection factors
are strong. Risk is modest, but may vary slightly over
time due to economic and/or underwriting conditions.
High claims paying ability. Protection factors are
above average although there is an expectation of
variability in risk over time due to economic and/or
underwriting conditions.
Adequate claims paying ability. Protection factors
are adequate although there is considerable variability
in risk over time due to economic and/or underwriting
conditions.
Uncertain claims paying ability and less than
investment grade quality. The ability of these
organisations to discharge obligations is considered
moderate and thereby not well safeguarded in the
future. Protection factors will vary widely with
changes in economic and/or underwriting conditions.
Possessing substantial risk that policyholder and
contract-holder obligations will not be paid when due.
Judged to be speculative to a high degree.
Company has been, or is likely to be, placed under an
order of the court.