GCR Affirms FSDH Merchant Bank Limited’s Rating of A-(NG); Stable Outlook.

30 Sep 2016 In Rating Notifications

GCR Affirms FSDH Merchant Bank Limited’s Rating of A-(NG); Stable Outlook.

Lagos Nigeria, 29 September 2016 - Global Credit Ratings has affirmed the national scale credit ratings assigned to FSDH Merchant Bank Limited of A-(NG) and A2(NG) in the long term and short term respectively; with the outlook accorded as Stable. The ratings are valid until September 2017.

RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit ratings based on the following key criteria:

FSDH Merchant Bank Limited’s (“FSDH” or “the bank”) strong brand acceptance, supported by its established operational track record in Nigeria of over two decades (including its operations as a discount house).

FSDH’s capitalisation position is considered satisfactory relative to its level of risk at 31 December 2015. Total shareholders’ funds totalled N25.4bn at the balance sheet data (FYE15), equating to 1.7 times the statutory requirement and were 22.5% higher than the FYE14 level (underpinned by rising internal capital generation). The bank’s risk weighted Tier 1 capital adequacy ratio (“CAR”) stood at 26.6% at FYE15, compared to the 10% minimum statutory requirement. A decline in reserves resulting from the negative effect of unrealised mark-to-market losses on available for sale securities, however, saw the capital level eroded by 13.9% to 21.9bn at 30 June 2016 (1H F16). However, Tier 1 capital adequacy remained acceptable at 20.6%.

The highly liquid nature of FSDH’s balance sheet largely mitigates its liquidity risk. Cash, interbank balances, and highly liquid investment securities made up 47.0% of the bank’s asset base at 31 December 2015. The bank’s statutory liquidity ratio stood at 37.4% at the balance sheet date, well above the 20% statutory requirement.

FSDH’s asset quality (in terms of loans and advances) came under pressure in F15, with the gross non-performing loan (“NPL”) ratio standing at 3.3% (FYE14: nil). The impaired loans totalling N1.3bn emanated from exposures to the general commerce sector. According to management, the impaired loans are related to two obligors and significant recoveries have been made on one of the accounts post the balance sheet date, with further recovery anticipated on the outstanding balance before the end of F16. As such, a modest arrears coverage ratio (collective and specific) of 54.6% was maintained by the bank.

FSDH reported an after tax profit of N3.4bn for F15, representing a 35.6% growth over F14. However, the reported pre-tax profit for the first half of F16 (”1H F16”) lagged the full year forecast by an annualised 17.1%. While the achievement of the F16 budget may be challenging based on the results for 1H F16, management expects an improved full year result relative to F15.

Improvement in asset quality, profitability and efficiency metrics, and a strong competitive position could prompt positive rating action. The ratings would be sensitive to a deterioration in asset quality, pressure on efficiency and profitability, and diminution in competitive strength.


NATIONAL SCALE RATINGS HISTORY                                                                

Initial rating (October 2000)*                                             
Long term: A(NG)
Short term: A1(NG)                                                                                 
Outlook: Stable                                                        

Last rating (September 2015)                                             
Long term: A-(NG)                                                                                   
Short term: A2(NG)
Outlook: Evolving                                                        

*Refers to FSDH Discount House Limited.


ANALYTICAL CONTACTS

Primary Analyst
Julius Adekeye
+23 41 462 2545
.(JavaScript must be enabled to view this email address)                       

Committee Chairperson
Dave King
.(JavaScript must be enabled to view this email address)


APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Master Criteria for Rating Banks and Other Financial Institutions, updated March 2016
Nigerian Banking Sector Bulletin, 2015
FSDH rating reports (2000-15)
Glossary of Terms/Ratios (February 2016)


RATING LIMITATIONS AND DISCLAIMERS

ALL GCR’S CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.COM.NG/UNDERSTANDING-RATINGS. IN ADDITION, GCR’S RATING SCALES AND DEFINITIONS ARE ALSO AVAILABLE FOR DOWNLOAD AT THE FOLLOWING LINK:  HTTP://GLOBALRATINGS.COM.NG/RATINGS-INFO/RATING-SCALES-DEFINITIONS. GCR’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, PUBLICATION TERMS AND CONDITIONS AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE AT HTTP://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, FSDH Merchant Bank Limited, and therefore, GCR has been compensated for the provision of the ratings.

FSDH Merchant Bank Limited participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.

The credit ratings above were disclosed to FSDH Merchant Bank Limited with no contestation of the ratings.

The information received from FSDH Merchant Bank Limited and other reliable third parties to accord the credit ratings included the latest audited annual financial statements as at 31 December 2015 (plus two years of comparative numbers), latest internal and/or external report to management, full year 2016 detailed budgeted financial statements, most recent year-to-date unaudited accounts to 30 June 2016, 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/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.

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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