GCR Affirms Rand Merchant Bank Nigeria Limited’s National Scale Rating of A(NG); Outlook Stable.

31 Aug 2017 In Rating Notifications

GCR Affirms Rand Merchant Bank Nigeria Limited’s National Scale Rating of A(NG); Outlook Stable.

Lagos Nigeria, 31 August 2017—Global Credit Ratings has affirmed the national scale ratings assigned to Rand Merchant Bank Nigeria Limited of A(NG) and A1(NG) in the long term 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 Rand Merchant Bank Nigeria Limited (“RMBNL” or “the bank”) based on the following key criteria:

RMBNL was one of the first institutions to obtain a merchant banking license in Nigeria, following the reintroduction of specialist banking licenses in 2012; and at FY16 has successfully operated for three full financial years. The rating also takes into consideration, RMBNL’s ownership by the FirstRand Limited Group (“FirstRand Group” or “the parent”), a leading South African financial services group, and the technical and financial support available from the parent.

Shareholders’ funds moderated by 4.0% to N21.2bn at FY16, albeit the risk weighted capital adequacy ratio (“CAR”) was strong at 55% (FY15: 82%), against the 10% regulatory minimum required for merchant banks. CAR was impacted by an increase in risk weighted assets, driven by the bank’s trade and working capital book.

RMBNL’s asset quality is considered strong as the gross non-performing loan (“NPL”) ratio was reported at Nil throughout the review period. Furthermore, the bank has maintained a cautious approach towards risk asset creation.

Liquidity risk is considered very minimal, given RMBNL’s highly liquid balance sheet profile. Total cash and tradable assets accounted for 59.1% of the asset pool at FY16 (FY15: 89.5%). Total asset growth was constrained by funding in FY16, and to overcome this, management launched a N80bn Commercial Paper (“CP”) issuance programme on the FMDQ OTC market in FY17. The CP is to be issued in various series at different terms and maturities, based on funding need.

While the bank recorded 15.2% growth in net interest income in FY16, non-interest income declined 60.9%, following a N1.6bn loss on foreign exchange (“forex”) transactions. As such, total operating income declined 7.2% to N4.5bn. Operating expenses also grew 7.9% on the back of increased staff related costs, resulting in the cost to income ratio rising to 101%. Consequently, the bank posted a loss of N123m in FY16, compared to pre-tax profit of N599m in FY15. ROaE and ROaA closed at -0.6% and -0.2% respectively, from 3.0% and 0.9% in FY15.

Performance in 1H FY17 reflects a significant improvement across all profitability metrics, as the bank recorded a pre-tax profit of N3.3bn, well ahead of budget for the period.

While the available parental support has been factored into the assigned ratings, an upward movement in the rating may follow significantly improved and sustained profitability and earnings quality. However, the rating may be adjusted downwards following a decline in asset quality or profitability which could impact on capital, or a change in the bank’s support structure.

NATIONAL SCALE RATINGS HISTORY

Initial rating (March 2016)

Long term: A(NG)

Short term: A1(NG)

Outlook: Stable

Last rating (December 2016)

Long term: A(NG)

Short term: A1(NG)

Outlook: Stable

 

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

RMBNL rating reports, 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 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, Rand Merchant Bank Nigeria Limited, and therefore, GCR has been compensated for the provision of the ratings.

Rand 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 and contested by Rand Merchant Bank Nigeria Limited and were reconsidered, and accorded following the provision of a comfort letter from the parent company.

The information received from Rand Merchant Bank Nigeria Limited and other reliable third parties to accord the credit rating included the audited accounts as at 31 December 2016 (plus three years of comparative audited financial statements), latest internal and external audit report to management, and full year to date budgets and management account to 30 June 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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