Fitch Ratings has improved four states in Nigeria: Kaduna, Kogi, Lagos and Oyo, the predetermined grades of emitters of mounts of foreign and local coins in the long term to 'B' from 'B-', with stable perspectives after the update of Nigeria A 'B' on April 11, 2025.
According to Fitch's rating criteria, the IDR of Nigerian states are limited by those of the sovereign because it considers the role of the federal government predominant in intergovernmental relations, since it controls the mechanism of promulgated equalization through a system of transfers to the states.
The update of the Sovereign IDRs, therefore, is reflected in the update of those of Kaduna, Kogi, Lagos and Oyo, since their independent credit profiles (SCPs) are aligned or are above the qualifications of Nigeria.
Looking at the financial profile, the Fitch Revised Qualification case in these four states includes updated macro data.
Also read: Fitch ratings updates Nigeria A 'B' stable outlook
They prevent the most steep naira depreciation, more than 1,500 to the US dollar for 2024–2028, and high but declined inflation.
These positively affect the allocation of transfers related to VAT and federal government's oil to states, which increased by more than 20% in the aggregate in 2024.
However, monetary depreciation exposes states with a high external debt to fluctuations in their debt service.
For the state of Kaduna-'b'-Fitch said: “We hope that Kaduna's recovery will remain 18 times in the midst of weak debt service and a high debt / income relationship, heavy due to a material exposure to Naira fluctuations.
“This is because 86% of its direct debt was called in foreign currencies at the end of 2023.
“Kaduna's general financial profile benefits from the increases in internally generated income and federal transfers, which support their operational margin to approximately 40% in the medium term. We assume that any new debt will be called in local currency,” said Fitch Ratings.
For the state of Kogi-'b'-Fitch said: “We hope that Kogi's recovery relationship will remain at approximately 20 times in the medium term.
“The recovery index considers the effect of Naira depreciation and new loans in national and foreign currencies to support its great Capex Plan.”
When explaining the 'AA' grades of the State of Lagos, Fitch declared: “We hope that the lake recovery relationship will remain around 5 times at the end of 2028. The incomparable level of lakes of the income generated internally generated by the income generated internal to other states (75% of the operating income, compared to a national average of 25%) and the dynamic tax revenues in its solid fiscal performance (hope budget at the entrance of 2024).
“This balances its high proportion of direct debt in foreign currencies (50% at the end of 2023), its high debt / income ratio of more than 200% and the coverage of the debt service of more than 1x”.
In the state of Oyo – 'A' – Fitch said: “We hope that Oyo's recovery will remain below 9 times, due to higher transfers of the federal government and, as its debt is mainly called Naira.
“We have volatility in the operating balance due to the large dependence on the state of volatile transfers related to oil and their weak secondary metrics.”
The grades agency stressed that the 'vulnerable' risk profile of these states reflects a very high risk that their ability to cover debt service with its operational balance can unexpectedly weaken for 2024-2028.
This, he added, may be due to the lowest income than expected, a higher than projected expense or an unexpected increase in liabilities or debt service requirements.
The Fitch referral summary shows that the 'B+' SCP of Lagos reflects a combination of a 'vulnerable' risk profile and a financial profile evaluated at the upper end of the 'AA' category, while its IDR are limited by those of the sovereign.
“The long -term IDR of Kaduna, Kogi and Oyo are driven by their 'B' SCP, reflecting a combination of a 'vulnerable' risk profile and financial profiles evaluated between the categories 'A' and 'BB',” he said.
Fitch said he does not apply any asymmetric risk or considers any extraordinary support from the central government.
According to the grades agency, the next review dates scheduled for their qualifications are on July 18, 2025 (Kaduna and Lagos) and on July 25, 2025 (Kogi and Oyo).
Fitch believes that Nigeria's long -term IDRs update a calendar deviation, with the justification described in the first part (high weight factors) of the key rating.
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