GCR Assigns Coronation Merchant Bank Limited A National Scale Rating Of A-(NG); Outlook Stable.

01 Jun 2016 In Rating Notifications

GCR Assigns Coronation Merchant Bank Limited A National Scale Rating Of A-(NG); Outlook Stable.

Lagos Nigeria, 1 June 2016—Global Credit Ratings has accorded national scale long term and short term ratings of A-(NG) and A2(NG) respectively, to Coronation Merchant Bank Limited; with the outlook accorded as Stable. The ratings are valid until May 2017.


SUMMARY RATING RATIONALE

Global Credit Ratings has accorded the above credit ratings to Coronation Merchant Bank Limited (“Coronation MB”) based on the following key criteria:

The ratings consider Coronation MB’s successful conversion and first six months of operation as a bank, having operated as a discount house under the brand name, Associated Discount House Limited (“ADH”), for over two decades. However, Coronation MB continues to benefit from ADH’s track record and brand acceptance within the financial services industry.

Coronation MB has a new management team comprising people with good industry knowledge and experience, who will assist in implementing the new strategic intent of the bank to become a top-quality merchant bank. The bank is considered well capitalised (at N20.8bn) for its current risk level, with a total risk weighted capital adequacy ratio (“CAR”) of 77.3% at FYE15, against the 10% regulatory minimum.

Coronation MB has only recently began to grow risk assets (given its short period of operation) and as such, the ratio of net advances to liability funding was only 4.3% at FYE15 (FYE14: 0.7%), indicating a low risk balance sheet. However, note is taken of the fact that this is likely to increase once the bank begins to book more loans. Furthermore, asset quality is considered strong, as the gross non-performing loan (“NPL”) ratio reduced to 0.4% at FYE15 (FYE14: 0.8%). NPLs were primarily balances on loans granted to former staff of ADH, and are expected to be written back to income upon recovery.

Liquidity risk is considered low, as cash and liquid assets accounted for 30.3% of the balance sheet. Furthermore, 89% of the bank’s investment securities comprise tradable treasury bills and Federal Government of Nigeria (“FGN”) bonds. The regulatory liquidity ratio averaged 100.8% in F15, against 20% required minimum for merchant banks.

Despite its mid-year transition, and an extremely challenging operating environment, Coronation MB reported a significant N2.3bn pre-tax profit in F15, representing a 43.7% increase from F14, and the highest in its last five years of operation as a discount house. The improvement in profitability was largely driven by a sharp increase in other income, coupled with the bank’s ability to source cheaper funds. Operating expenses rose during F15 due to conversion costs, resulting in the cost ratio rising to 46.4%. Return on average equity and assets (“ROaE” and “ROaA”) were 17.0% and 4.2%, respectively in F15, against 11.9% and 2.2% recorded in F14 under the discount house operation.

The bank’s ability to compete favourably and gain market share, as well as its ability to grow the loan book while maintaining sound asset quality may lead to an upward movement in the ratings. However, a decline in profitability and/or asset quality which would impact on its capital could lead to a negative rating action.


NATIONAL SCALE RATINGS HISTORY

Initial/last rating (May 2016)
Long term: A-(NG); Short term: A2(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
Glossary of Terms/Ratios, February 2016
ADH rating reports (2007-14)


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, Coronation Merchant Bank Limited, and therefore, GCR has been compensated for the provision of the ratings.

Coronation Merchant Bank Limited participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.

The credit ratings above were disclosed to Coronation Merchant Bank Limited with no contestation of/changes to the ratings.

The information received from Coronation Merchant Bank Limited and other reliable third parties to accord the credit ratings included the latest audited financial statements at 31 December 2015, four years financial statements of ADH, latest internal and/or external report to management, full year budget for 2016 and most recent management accounts to 31 March 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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