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

15 Aug 2016 In Rating Notifications

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

Lagos Nigeria, 15 August 2016 - 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 2017.

SUMMARY RATING RATIONALE

Global Credit Ratings has accorded the above credit ratings to WSTC Financial Services Limited based on the following key criteria:

WSTC Financial Services Limited (“WSTC” or “the company”) has operated in the financial services industry for over two and half decades, providing a bouquet of non-bank services, which include wealth management, stockbroking and financial advisory. The company has displayed stable management over time.

Total shareholders’ funds remained robust at a relatively stable N1.6bn, which is well above the new capital requirement of N100m for finance companies in Nigeria. As such, the risk weighted capital adequacy ratio (“CAR”) stood at 70.0%, relative to a regulatory minimum of 12.5%.

Asset quality is considered strong, and has improved over the years. The gross non-performing loan (“NPL”) ratio reduced to a neglible amount at FYE15, from 2.0% at FYE12, driven by a write-off of N2.6m in F15.

Liquidity risk is considered fairly well mitigated, given the nature of WSTC’s balance sheet and its ability to dispose of assets as and when required. Cash and short term placements increased to 21.8% of total assets at FYE15, and an additional 33.6% of the company’s assets were held in secured treasury bills and Federal Government of Nigeria (“FGN”) bonds. Other tradeable assets (including commercial paper and Eurobonds) also accounted for 20.5% of total assets at FYE15.

Despite various macroeconomic headwinds resulting in a challenging operating environment in F15, WSTC reported a profit before tax of N180.5m (F14: N240.1m). While interest income grew 16.4% during the year, and net interest margin widened to 7.1% (FYE14: 5.5%), profitability was impacted by the volatile securities trading market which resulted in a 25.6% decline in non-interest income. In addition, operating expenses grew 9.2% to N370.0m, translating to a cost ratio of 67.2% in F15 (F14: 58.2%). Hence, F15 ROaE and ROaA reduced to 7.8% and 2.6% respectively (F14: 13.6% and 4.3%).

Although management forecasts for F16 have been quite conservative, in line with the challenging macroeconomic outlook, performance in 1H F16 was well above budget, largely supported by non-interest income.

A sustained improvement in profitability metrics, together with maintenance of adequate capitalisation, liquidity and asset quality levels, may be positively considered. A continuous decline in profitability (level or stability), which could impair the company’s capital, as well as negative implications from regulatory changes on the company’s financial and market profile, may negatively impact the current ratings.


NATIONAL SCALE RATINGS HISTORY

Initial rating (June 2011)
Long term: BBB-(NG); Short term: A3(NG)
Outlook: Stable

Last rating (July 2015)
Long term: BBB-(NG); Short term: A3(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
Nigeria Banking Sector Bulletin (June 2016)
WSTC rating reports (2011-15)
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, 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 2015 (plus three years of comparative numbers), latest internal and/or external auditor’s report to management, full year detailed budget for 2016, and most recent management accounts to 30 June 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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