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

19 Dec 2016 In Rating Notifications

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

Lagos Nigeria, 19 December 2016—Global Credit Ratings has affirmed the national scale issuer 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 2017.

SUMMARY RATING RATIONALE

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

RMBNL’s status as a member of the FirstRand Limited Group (“the parent”), one of the largest financial institutions in South Africa and the technical support available therefrom. The available technical support from the parent has also been favourably considered.

Although it has a relatively short track record (less than five years), RMBNL is one of the first two merchant banks to be licenced and as such stands to benefit as a first mover in the industry.

Capitalisation was further strengthened by a 32.0% increase in shareholders’ funds to N22.1bn at FYE15, following a N3bn capital injection by the parent during 2015, supplemented by internal capital generation. As such, despite significant asset growth, the risk weighted capital adequacy ratio (“CAR”) remained high at 80% at FYE15 (FYE14: over 100%), against a 10% regulatory minimum. As at 3Q F16, shareholders’ funds amounted to N20.4bn.

Asset quality ratios remained strong, with the non-performing loan (“NPL”) ratio reflected at Nil from inception to date. However, note is taken of the fact that the bank only recently began to build up its loan book, and total loan exposure remains minimal relative to peers.

RMBNL displayed a highly liquid balance sheet profile, with total cash, interbank balances and tradeable treasury bill investments accounting for a significant 89.5% of total assets at 31 December 2015. Furthermore, the bank’s monthly regulatory liquidity ratios were well above 100% throughout 2015 and 2016 to date (FYE15: 168%, 3Q F16: 116%), against the required 20% minimum.

Despite a significant 135% increase in net interest income in F15, profit after tax closed at a lower N581m (F14: N2.0bn), driven by a 61.6% decline in non-interest income and higher operating cost (up 32.9%) Consequently, the cost ratio rose to 87% from 61.5%, while ROaE and ROaA closed the year at a lower 3.0% and 0.9% from 11.9% and 5.5% respectively at the profit after tax level. Also, while the bank reported an improved total operating income of N3.4bn at 3Q F16, a loss before tax amounting to N492m was recorded (although an improvement from the N1.4bn loss recorded for the same period F15).

Given the tough operating environment and the resultant volatility in earnings, note is taken of RMBNL’s ability to support revenue with transaction based income (some of which are yet to be fully recognised). However, the need for operational efficiency is also noted to sustain profitability.

While the available parental support has been factored into the assigned ratings, an improvement in efficiency and consistency of profitability would be favourably considered, a significant decline in asset quality or profitability which could impact on capital, or a change in the bank’s support structure, may lead to a negative rating action.


NATIONAL SCALE RATINGS HISTORY

Initial/last rating (March 2016)
Long term: A(NG); Short term: A1(NG)
Outlook: Stable

ANALYTICAL CONTACTS

Primary Analyst
Funmilayo Ojatunwase
.(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 2016
Glossary of Terms/Ratios, February 2016
RMBNL rating reports (March 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, 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 2015 (plus two 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 September 2016. 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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