GCR Affirms Stanbic IBTC Bank PLC’s rating of AA-(NG); Places Outlook on Rating Watch.

14 Sep 2016 In Rating Notifications

GCR Affirms Stanbic IBTC Bank PLC’s rating of AA-(NG); Places Outlook on Rating Watch.

Lagos Nigeria, 14 September 2016 — 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 placed on Rating Watch. The ratings are valid until March 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:

The ratings reflect Stanbic’s status as a mid-sized player in the Nigerian commercial banking space, with focus on deepening market share especially within its retail banking segments. Also, the ratings are underpinned by 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.

Stanbic has on-going legal proceedings with Financial Reporting Council of Nigeria (“FRCN”), which commenced in 2015. The litigation was initiated by the bank following FRCN’s sanction on the bank for alleged non-compliance with IFRS regarding the treatment of certain transactions between the bank and its foreign technical partner (Standard Bank of South Africa Limited). These transactions had resulted in accrued liabilities in respect of franchise fees, which were reported in the F13 and F14 financial statements, amounting to N2.1bn and N3.5bn respectively. The pending court case has constrained timely approval of the 2015 financial statements by Central Bank of Nigeria (“CBN”), the bank’s external auditor, and its board of directors. An unfavourable outcome of the litigation is expected to impact profitability in view of the ensuing penalty (currently estimated at around N1bn).

The unaudited management accounts to 30 September 2015 (“3Q F15”) reflect increased pressure on the bank’s asset quality, with the gross non-performing loan ratio escalating to 7.4% (FYE14: 4.3%), above the CBN’s tolerable limit of 5%. Management’s efforts towards improving the bank’s asset quality position are noted. However, the bank’s exposure (17-19% of gross loans and advances) to the oil and gas sector may see delinquent assets rise further given the current challenges within the sector (including foreign exchange shortages and socio-political unrest in the oil producing region).

Stanbic remains well capitalised for its current risk level, with a regulatory risk weighted capital adequacy ratio between 18-19% at 3Q F15, which was well above the prudential minimum of 10% for a national bank.

The bank’s liquidity risk is considered low, especially considering its highly liquid balance sheet over the review period. Furthermore, the bank generally maintains a significant portion of its investment portfolio in short term, highly liquid securities and has available credit lines from other financial institutions. Stanbic’s regulatory liquidity ratio ranged between 38% and 57% at 3Q F15, well above the prudential requirement of 30%.

Higher interest expenses and credit impairments constrained profitability in 3Q F15, with a lower after tax profit expected for full-year F15 relative to F14. The bank’s management has indicated increased focus on cost reduction initiatives, which should see the bank’s operational efficiency and profitability improve in F16. The bank’s cost/income ratio averaged 75% in the current review period.

Ratings upgrade is currently limited, given the tough operating conditions in Nigeria, which are expected to impact performance across the banking sector. However, the ratings are sensitive to further deterioration in key asset quality indicators and profitability, 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 (August 2015)
Long-term: AA-(NG)
Short-term: A1+(NG)
Rating outlook: Stable


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 (2006-15)
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 four years of audited annual financial statements (2011-14), unaudited management accounts to 30 September 2015, 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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