GCR Accords Stanbic IBTC Holdings PLC an Initial Rating of AA-(NG); Outlook Stable

16 Mar 2017 In Rating Notifications

GCR Accords Stanbic IBTC Holdings PLC an Initial Rating of AA-(NG); Outlook Stable

Lagos Nigeria, 16 March 2017 — Global Credit Ratings has today accorded national scale ratings of AA-(NG) and A1+(NG) in the long-term and short-term respectively to Stanbic IBTC Holdings PLC, with the outlook accorded as Stable. The ratings are valid until March 2018.


RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit ratings to Stanbic IBTC Holdings PLC (“Stanbic IBTC”, “the Holdco”, “the Group”) based on the following key criteria:

The ratings of Stanbic IBTC reflect its favourable competitive positioning within the Nigerian financial services sector, particularly the strong market presence in pension management, investment banking and asset management. The ratings also take cognisance of the financial and technical support from its parent company, Standard Bank Group (“SBG”), which is Africa’s largest banking group ranked by assets and earnings. Despite the current challenging operating environment in Nigeria, the Group is expected to remain resilient, underpinned by its diversified earnings through nine operating subsidiaries across various segments of the financial services sector.

Stanbic IBTC Bank PLC, a commercial banking group, is the flagship and leading operating subsidiary of the Holdco, contributing about 68.6% and 94.0% of the Group’s consolidated total income and assets respectively at FY15, while other non-banking subsidiaries contributed the balance. As such, the Group’s ratings largely replicate the banking subsidiary’s ratings.

The Holdco’s lending activities are mainly carried out by its banking subsidiary. Asset quality remains under pressure, with the Group’s non-performing loans (“NPLs”) rising from N17.9bn at FY14 to N32.1bn at 30 September 2016 (“3Q FY16”), triggering a higher NPL ratio of 8.2%. The growth in NPLs was mainly driven by the weak operating conditions which has negatively impacted loan exposures within the oil and gas services, public utilities, transportation and consumer sectors. However, the provisioning level is considered satisfactory, with the specific arrears coverage ratio amounting to 76.9% at 3Q FY16 (FY15: 69.3%). While management has indicated that lending will be more cautious in line with the weak economy, the NPL ratio is expected to remain elevated in FY17.

Stanbic IBTC’s capital level is considered satisfactory. The Group reported a risk weighted capital adequacy ratio (“CAR”) of 21.0% at 3Q FY16. Similarly, the banking subsidiary reported a CAR of 17.2%, which was well above the regulatory minimum of 10% for a national bank. Furthermore, Stanbic IBTC maintains a highly liquid balance sheet, with a portfolio of highly liquid marketable securities, over and above prudential requirements. The Group’s liquidity ratio stood at 78% at 3Q FY16.

Gross earnings have risen steadily over the years driven by increased lending activities and transaction volume, as well as better pricing of loans. This notwithstanding, profitability has moderated since FY15 due to a rise in loan impairment charges. The Group posted a net profit after tax of N18.9bn in FY15, from a review period high of N34.5bn in FY14. While results at 3Q FY16 indicates improved performance over FY15, GCR expects bottom-line earnings to remain under pressure in view of the challenging economic conditions.

While the difficult economic and operating environment has increased downside risk for Nigeria’s financial services sector, maintaining sound asset quality and strong capital, liquidity and earnings metrics through the economic cycle, as well as additional franchise entrenchment and higher market share, would further enhance the Group’s financial profile. However, the ratings would be sensitive to a sharp deterioration in asset quality, earnings, capital adequacy and liquidity metrics, as well as a reduction in the assessment of parental support.


NATIONAL SCALE RATINGS HISTORY

Initial/last rating (not applicable)
Long-term: first time/new rating
Short-term: first time/new rating
Rating outlook:  first time/new rating


ANALYTICAL CONTACTS

Primary Analysts

Femi Atere/Julius Adekeye
Credit Analyst/Senior Credit Analyst
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Committee Chairperson
Dave King
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APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Global Criteria for Rating Banks and Other Financial Institutions, updated March 2016
Nigerian Banking Sector Bulletin, 2016
Stanbic IBTC Bank PLC rating reports (2006-16)
Glossary of Terms/Ratios, February 2016


RATING LIMITATIONS AND DISCLAIMERS

ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.COM.NG/UNDERSTANDING-RATINGS. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT HTTP://GLOBALRATINGS.COM.NG/RATINGS-INFO/RATINGS-SCALES-DEFINITIONS. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE AT WWW.GLOBALRATINGS.COM.NG.


SALIENT FEATURES OF ACCORDED RATINGS

GCR affirms that a.) no part of the rating was influenced by any other business activities of the credit rating agency; b.) the rating was 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, Stanbic IBTC Holdings PLC, and therefore, GCR has been compensated for the provision of the ratings.

Stanbic IBTC Holdings PLC participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of info received was considered adequate and has been independently verified where possible.

The credit ratings above were disclosed to Stanbic IBTC Holdings PLC with no contestation of/changes to the ratings.

The information received from Stanbic IBTC Holdings PLC and other reliable third parties to accord the credit rating included the audited annual financial statements as at 31 December 2015 (plus four years of comparative numbers), management accounts to 30 September 2016, latest internal and/or external audit report to management, full year detailed budgeted financial statements for 2016 and 2017, reserving methodologies and capital management policies. In addition, information specific to the rated entity and/or industry was also received.

 

 

 

 

 

 

 

 

 

 

 

ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.COM.NG/UNDERSTANDING-RATINGS. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT HTTP://GLOBALRATINGS.COM.NG/RATINGS-INFO/RATINGS-SCALES-DEFINITIONS. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE UNDERSTANDING RATINGS SECTION OF THIS SITE.

ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.COM.NG/UNDERSTANDING-RATINGS. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT HTTP://GLOBALRATINGS.COM.NG/RATINGS-INFO/RATING-SCALES-DEFINITIONS. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE UNDERSTANDING RATINGS SECTION OF THIS SITE.

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