GCR Affirms Sterling Bank Plc’s rating of BBB(NG); outlook Stable

08 Jul 2016 In Rating Notifications

GCR Affirms Sterling Bank Plc’s rating of BBB(NG); outlook Stable

Lagos Nigeria, 08 July 2016 - Global Credit Ratings has affirmed the national scale credit ratings assigned to Sterling Bank Plc of BBB(NG) and A3(NG) in the long term and short term respectively; with the outlook accorded as Stable. The ratings are valid until June 2017.

RATING RATIONALE

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

Sterling Bank Plc (“Sterling” or “the bank”) ranks among the mid-sized commercial banks in Nigeria, having over 180 operating outlets across the country. Sterling’s total assets amounted to N796.4bn (representing a market share of 2.8%) at FYE15.

The bank’s capital base grew 12.2% in F15, solely through internal capital generation, with the risk weighted capital adequacy ratio (“RWCAR”) improving to 17.5% at FYE15 (FYE14: 14.0%). To further strengthen its capital base and support asset growth, the bank is in the process of raising Tier 2 capital (a subordinated bond Issue is expected to be concluded in the third quarter of F16).

Although Sterling’s gross non-performing loan (“NPL”) ratio rose to 4.8% at FYE15 (from 3.1% at FYE14), it remains within the regulatory guidance limit and in line with peer benchmarks. Specific provision coverage improved to 68.2% at FYE15 (FYE14: 54.6%). Loan write-offs amounted to N2.2bn (F14: N4.0bn) in F15.

A mismatch of asset and liability maturities was evident in F15, with the bank recording a liquidity gap of N305.6bn in the ‘less than three months’ maturity band, equating to 3x capital. Cumulative negative liquidity gaps were also recorded across the ‘up to one year’ maturity bands. Cognisance has been taken of the behavioral liability pattern, with a significant portion of deposits normally rolled over at maturity. It is furthermore noted that liquidity mismatches are a structural issue within the Nigerian banking sector.

Notwithstanding the recorded 100 basis points contraction in net interest margin, Sterling reported a net profit after tax (“NPAT”) of N10.3bn for F15, an improvement of 14.4% over F14. Performance was supported by non-interest income which grew 13.8% to N29.3bn (buoyed by growth in securities trading). Furthermore, the total operating expense line declined 1.9% to N49.7bn, resulting in a reduction in the cost ratio to 72.2%, from 73.6% in F14. Consequently, the ROaA improved to 1.3% in F15 (F14: 1.2%), while ROaE dipped to 11.4% (F14: 12.2%) on the back of modest earnings growth combined with growth in equity.

Upward movement in the rating(s) or outlook could result from material and sustained improvement in the bank’s profitability and asset quality, as well as an enhanced competitive position. Negative rating action may follow pressure on profitability, asset quality and/or liquidity metrics.

NATIONAL SCALE RATINGS HISTORY

Initial rating (April 2009)
Long term rating: BBB(NG)
Short term rating: A2(NG)
Rating outlook: Stable

Last Rating (June 2015)
Long term rating: BBB(NG)
Short term rating: A3(NG)
Rating outlook: Stable


ANALYTICAL CONTACTS

Primary Analyst
Adeyinka Olowofela
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
Sterling rating reports (2009-15)
Nigerian Banking Sector Bulletin, 2016
Glossary of Terms/Ratios (February 2016)


RATING LIMITATIONS AND DISCLAIMERS

ALL GCR’S 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, GCR’S RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLI WEB SITE AT:  HTTP://GLOBALRATINGS.COM.NG/RATINGS-INFO/RATING-SCALES-DEFINITIONS. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE ON 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, Sterling Bank Plc, and therefore, GCR has been compensated for the provision of the ratings.

Sterling 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 Sterling Bank Plc with no contestation of/changes to the ratings.

The information received from Sterling 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), latest internal and/or external report to management, full year detailed budgeted financial statements for 2016, most recent year-to-date management accounts to 31 March 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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