Fitch indicates that improving the bank's rating would require lowering its exposure to sovereign bonds from the Sahel, diversifying its assets, and achieving a lasting improvement in the quality of its loan portfolio. On the other hand, deteriorating regional economic conditions could heighten its vulnerability.

Fitch Ratings reaffirmed yesterday United Bank for Africa Senegal’s (UBA Senegal) credit rating at “B-” with a stable outlook. This rating reflects the bank's strong performance in certain areas but also points to significant risks tied to its asset structure and financial health.

A major concern is how the bank allocates its assets. An overwhelming 62% of UBA Senegal’s assets are invested in government bonds from the WAEMU region, while only 15% are allocated to loans. This heavy reliance on sovereign bonds, especially those from countries in the Sahel facing political and security challenges—such as Niger, Mali, and Burkina Faso—poses considerable risk. Fitch noted that 21% of the bank’s assets, equivalent to 2.5 times its equity, are tied to these three countries, increasing its exposure to potential instability in the region.

The bank’s loan portfolio, though much smaller than its bond investments, also has significant challenges. According to Fitch, 35% of UBA Senegal’s loans are non-performing, which is an alarmingly high rate. Although some improvement is expected, the bank’s loan concentration remains a critical issue. Just 20 borrowers account for 78% of the bank’s gross loans, equivalent to 2.2 times its equity. This means the bank is highly dependent on a small number of clients, making its lending strategy vulnerable to defaults from any of these key borrowers.

Despite these risks, UBA Senegal has delivered strong profitability. In the first half of 2024, its return on equity (ROE) reached an impressive 27%, a sharp increase from the 12% recorded in 2023 and well above the industry average. However, Fitch warns that this profitability is not consistent and is heavily influenced by changes in provisions for its high-risk assets.

Another challenge is the bank’s growing reliance on income from government bonds. This dependency could limit its flexibility and resilience if economic conditions worsen. However, UBA Senegal’s capital adequacy ratio remains robust at 24.6%, well above the regulatory minimum of 11.5%, providing some reassurance about its overall financial stability.