Finance

UBA Senegal Relies Heavily on Risky Government Bonds While Loans Struggle

UBA Senegal Relies Heavily on Risky Government Bonds While Loans Struggle
Wednesday, 27 November 2024 13:07

(Ecofin Agency) - 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.

On the same topic
• UBA Group expands asset management arm to Abidjan with UCAMWAL• Subsidiary to offer diversified investment solutions beyond Nigeria• Strategy aims to...
• BOAD and JICA sign €200 million loan deal to support West Africa’s growth corridor plan.• Funding targets roads, rail, logistics, and basic...
Prime Minister Ousmane Sonko officially launched the second edition of the Invest in Senegal Forum (FII Senegal 2025) this Tuesday, scheduled to take...
• Swedfund joins Novastar Ventures' third fund with a $10 million commitment to back green startups in Africa• The fund targets clean energy,...
Most Read
01

• The NCC now requires telecom operators to publish details of major service outages.• Operators mus...

Nigerian Regulator Orders Transparency on Telecom Outages
02

• The African Solidarity Fund has provided CFA225 billion ($390 million) in guarantees to support Ni...

African Solidarity Fund Reports $390 Million in Support for Niger
03

• UBA Group expands asset management arm to Abidjan with UCAMWAL• Subsidiary to offer diversified in...

UBA Launches Asset Management Subsidiary in Côte d’Ivoire
04

While Small-Scale Businesses (SSBs) or businesses in the so-called "informal sector" represent a sig...

Interview: Tapping into the Bond Market to Finance Informal Businesses (FinAfrique)
05

AXIAN Energy has officially broken ground on the NEA Kolda solar power plant, marking the start of c...

Senegal : Axian Energy breaks ground on the NEA Kolda solar power plant
Enter your email to receive our newsletter

Ecofin Agency provides daily coverage of nine key African economic sectors: public management, finance, telecoms, agribusiness, mining, energy, transport, communication, and education.
It also designs and manages specialized media, both online and print, for African institutions and publishers.

SALES & ADVERTISING

Benjamin FLAUX
bf@agenceecofin.com 
Téls: +41 22 301 96 11 
Mob: +41 78 699 13 72
Média kit : Download

EDITORIAL
redaction@agenceecofin.com

More information
Team
Publisher

ECOFIN AGENCY

Mediamania Sarl
Rue du Léman, 6
1201 Geneva
Switzerland

 

Ecofin Agency is a sector-focused economic news agency, founded in December 2010. Its web platform was launched in June 2011. ©Mediamania.

 
 

Please publish modules in offcanvas position.