GCR Affirms FBN Merchant Bank Limited’s National Scale Rating Of A-(NG); Outlook Stable.

28 Aug 2017 In Rating Notifications

GCR Affirms FBN Merchant Bank Limited’s National Scale Rating Of A-(NG); Outlook Stable.

Lagos Nigeria, 28 August 2017—Global Credit Ratings has today affirmed the national scale ratings assigned to FBN Merchant Bank Limited of A-(NG) and A2(NG) in the long and short term respectively, with the outlook accorded as Stable. The ratings are valid until July 2018.

SUMMARY RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit ratings to FBN Merchant Bank Limited (“FBNMB” or “the bank”) based on the following key criteria:

FBNMB successfully operated as a merchant bank for the full year 2016, having converted from Kakawa Discount House Limited (“Kakawa”) and subsequently becoming a member of the FBN Holdings Plc (“the group”). Also, note is taken of the significant change at the top management level to drive the new merchant banking strategy.

While FBNMB intends to explore all the permissible activities under merchant banking operations, it is yet to fully implement its strategic plan. As such, the bank is considered to be in an initiation stage.

Shareholders’ funds increased 4.0% to N29bn at FY16, ranking as one of the highest among peers and ahead of the regulatory minimum of N15bn for the subsector. The bank’s capital adequacy ratio is considered strong at 22.6%, against a regulatory minimum of 10%.

The bank’s regulatory liquidity ratio ranged between 58.5% and 84.6% in FY16 and averaged 74.4% for the period, against the 20% regulatory minimum for the subsector. Furthermore, cash and equivalents totalled N22.9bn, representing 16.8% of the asset pool at FY16. Furthermore, a sizeable 86.8% of the investment securities were placed in tradable treasury bills and Federal Government of Nigeria bonds.

Asset quality metrics improved significantly in FY16, as the non-performing loan (“NPL”) ratio reduced to 3.4%, from 12.2% in FY15. While cognisance is taken of the fact that all NPLs were from the discount house operation, management has also informed GCR that these only relate to two obligors, one of which made a partial settlement in FY16.

Although FBNMB reported an improved profitability at the pre-tax level (which grew 28.5% in FY16), profit after tax was a lower N4.9bn (FY15: N6.6bn) as the bank had benefited from tax credit in FY15. The bank recorded 21.1% growth in total operating income, largely supported by non-interest income (comprising fee and commission income, foreign exchange revaluation gains as well as investment banking activities). However, operating expenses also grew 39.5% on the back of ongoing structural adjustments and an increase in staff strength. The cost to income ratio is considered moderate at 39.8%. Consequently, return ROaE and ROaA stood at 17.3% and 4.0% respectively in FY16 (FY15: 29.2% and 6.6% respectively). Furthermore, performance in 1Q FY17 reflects a significant improvement from that of the same period in FY16, albeit behind budgeted figures. Note is taken of the fact that budgeted figures for FY17 appear optimistic.

The rating may be adjusted upward following a sustained improvement in profitability and asset quality. However, it may be negatively impacted by a deterioration in asset quality metrics, liquidity and or the capitalisation level.

 

NATIONAL SCALE RATINGS HISTORY

Initial rating (June 2006)*

Long term: A(NG);

Short term: A1(NG)

Outlook: Stable

Last rating (October 2016)

Long term: A-(NG);

Short term: A2(NG)

Outlook: Stable

*Refers to ratings of Kakawa Discount House Limited.

 

ANALYTICAL CONTACTS

Primary Analyst

Funmilayo Abdulrahman

.(JavaScript must be enabled to view this email address)

+234 1 462 2545

Committee Chairperson

Dave King

.(JavaScript must be enabled to view this email address)

 

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Global Criteria for rating Banks and Other Financial Institutions, updated March 2017

Glossary of Terms/Ratios, February 2016

UBN rating report (2015-16)

 

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 http://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, FBN Merchant Bank Limited, and therefore, GCR has been compensated for the provision of the ratings.

FBN Merchant Bank Limited 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 FBN Merchant Bank Limited with no contestation of the ratings.

The information received from FBN Merchant Bank Limited and other reliable third parties to accord the credit ratings included the latest audited financial statements at 31 December 2016 (plus one year of audited comparative numbers), latest internal and/or external report to management, full year budget for 2017 and most recent management accounts to 31 March 2017. 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/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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