GCR Affirms Stanbic IBTC Bank PLC’s rating of AA-(NG); Outlook Stable

16 Mar 2017 In Rating Notifications

GCR Affirms Stanbic IBTC Bank PLC’s rating of AA-(NG); Outlook Stable

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

RATING RATIONALE

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

Stanbic, a subsidiary of Stanbic IBTC Holdings PLC, is a locally registered commercial bank, focusing on deepening market share, particularly within the retail banking segment. While the bank ranks well among the mid-sized players in Nigeria, a key rating strength is the implied financial, risk management and technical support from its ultimate parent, Standard Bank Group (“SBG”). SBG is Africa’s largest banking group ranked by assets and earnings.

Asset quality continued to witness pressure, with the bank’s gross non-performing loan ratio escalating to 8.2% at 3Q FY16 (FY15: 7.3%), above Central Bank of Nigeria’s tolerable limit of 5%. Although management’s efforts towards improving the bank’s asset quality position are noted, the bank’s current exposure within the troubled oil and gas, transportation, public utilities and consumer credit sectors may see delinquent assets rise further given the challenging operating environment and the persistent foreign exchange illiquidity in the country.

Stanbic remains well capitalised for its current risk level, with a regulatory risk weighted capital adequacy ratio of 17.2% at 3Q FY16 (FY15: 18.4%), well above the prudential minimum of 10% for a national bank. Furthermore, the bank’s liquidity risk is considered low, especially considering its highly liquid balance sheet. Stanbic’s regulatory liquidity ratio averaged 49.0% at FY15, and stood at 76.1% at 3Q FY16, well above the prudential requirement of 30%.

Profitability was constrained by higher interest expenses and credit impairments in FY15, with the bank posting a lower net profit after tax of N6.2bn, against N21.9bn delivered in FY14. Furthermore, operating efficiency was weak, as evidenced by the cost/income ratio which rose to 71.9% in FY15 (FY14: 62.5%). While results as of 3Q FY16 indicate improved performance, GCR expects the bottom-line earnings to remain under pressure into FY17, given the challenging economic conditions.

The accorded ‘Stable’ rating outlook reflects the significant progress recorded in the resolution of some key issues relating to the court case between Stanbic and the Financial Reporting Council (“FRC”). GCR had earlier (in September 2016) placed the bank on ‘Rating Watch’ subsequent to FRC’s sanction on the bank for the treatment of certain transactions between Stanbic and its foreign technical partner, Standard Bank of South Africa Limited.

Ratings upgrade is currently limited, given the tough operating environment in Nigeria, which will continue to negatively impact performance across the banking sector. Furthermore, the ratings are sensitive to a sharp deterioration in key asset quality indicators, earnings, capital adequacy and liquidity, as well as a reduction in the assessment of shareholder support.

NATIONAL SCALE RATINGS HISTORY

Initial rating (December 2006)
Long-term: AA-(NG)
Short-term: A1(NG)
Rating outlook:  Stable

Last rating (September 2016)
Long-term: AA-(NG)
Short-term: A1+(NG)
Rating outlook: Watch


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 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 Bank PLC, and therefore, GCR has been compensated for the provision of the ratings.

Stanbic IBTC Bank 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 Bank PLC with no contestation of/changes to the ratings.

The information received from Stanbic IBTC Bank PLC and other reliable third parties to accord the credit rating included the latest 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, 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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