GCR Affirms WSTC Financial Services Limited’s Rating Of BBB-(NG); Outlook Stable.

28 Aug 2017 In Rating Notifications

GCR Affirms WSTC Financial Services Limited’s Rating Of BBB-(NG); Outlook Stable.

Lagos Nigeria, 28 August 2017—Global Credit Ratings has affirmed the national scale ratings assigned to WSTC Financial Services Limited of BBB-(NG) and A3(NG) in the long term and short term respectively; with the outlook accorded as Stable. These ratings are valid until July 2018.

SUMMARY RATING RATIONALE

Global Credit Ratings has accorded the above credit ratings to WSTC Financial Services Limited (“WSTC” or “the company”) based on the following key criteria:

The ratings of WSTC reflect its relative stability over the five year review period, and maintenance of its position as a niche player in the non-bank financial services industry (focussing on high net-worth individuals (“HNIs”)). The company also benefits from its relatively long track record of over two and half decades, which supports the acceptability and popularity of the brand within its subsector.

Capitalisation is considered strong for the current level of operation as total shareholders’ funds stood at a relatively stable N1.6bn at FY16. Furthermore, the risk weighted capital adequacy ratio (“CAR”) was a higher 93% (FY15: 70.0%), following a reduction in risk assets.

The company continued to improve its asset quality year-on-year, with the gross non-performing loan (“NPL”) ratio declining to zero in FY16 (FY15: less than 0.1%).

Key liquidity metrics are considered satisfactory, as cash and liquid/tradeable assets to total borrowings stood at 123% at FY16. Cash and liquid assets (including risk free Treasury bills and Federal Government of Nigeria bonds accounted for 65.2% of the company’s asset pool at FY16.

WSTC reported an improved pre-tax profit of N258m in FY16, well above budget and 43.3% higher than FY15. While the company recorded an 8.6% decline in net interest income during the period, profitability was bolstered by a 50.6% growth in non-interest income. The company made a foreign exchange gain of N223m (FY15: N58.4m) on its Eurobond investments, thus, supporting total income, although this is not expected to recur. Operating expenses grew 9.3% on the back of increased staff costs and other administrative expenses. Nonetheless, the cost to income ratio reduced to 61% in FY16 (FY15: 67.2%). Consequently, the return on average equity and asset (“ROaE” and “ROaA”) closed at a higher 13.7% and 4.5% respectively (FY15: 7.8% and 2.6% respectively).

Cognisance is taken of WSTC’s diminished performance in 1H FY17, in which a pre-tax loss of N26.3m was recorded, following recognition of a N65m loss incurred on disposal of unquoted equity securities. Management remains optimistic about closing the year in a profitable position, noting that disposal of the equity portfolio was considered a proactive measure taken to limit equity risk exposure.

The rating may be reviewed upward as a result of significant and sustained improvement in profitability and liquidity. Also, the ability to maintain asset quality metrics at a sound level may be positively considered. However, the rating may be reviewed downward following a sustained pressure on profitability.

 

NATIONAL SCALE RATINGS HISTORY

Initial rating (June 2011)

Long term: BBB-(NG); Short term: A3(NG)

Outlook: Stable

Last rating (August 2016)

Long term: BBB-(NG); Short term: A3(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

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APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Global Criteria for Rating Banks and Other Financial Institutions, updated March 2017

Criteria for Rating Finance and Leasing Companies, updated March 2017

WSTC rating reports (2011-16)

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 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, WSTC Financial Services Limited, and therefore, GCR has been compensated for the provision of the ratings.

WSTC Financial Services 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 WSTC Financial Services Limited with no contestation of/changes to the ratings.

The information received from WSTC Financial Services Limited and other reliable third parties to accord the credit ratings included the latest audited annual financial statements at 31 December 2016 (plus four years of comparative numbers), latest internal and/or external auditor’s report to management, full year detailed budget for 2017, and most recent management accounts to 31 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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