GCR Assigns Fortis Microfinance Bank Plc a National Scale Rating of BBB-(NG); Outlook Stable.

22 Sep 2017 In Rating Notifications

GCR Assigns Fortis Microfinance Bank Plc a National Scale Rating of BBB-(NG); Outlook Stable.

Lagos, 25 September 2017—Global Credit Ratings has accorded Fortis Microfinance Bank Plc (“Fortis” or “the bank”)  first time, national scale ratings of BBB-(NG) and A3(NG), in the long and short term respectively; with the outlook accorded as Stable.  The ratings are valid until May 2018.

RATING RATIONALE

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

The ratings of Fortis Microfinance Bank Plc (“Fortis” or “the bank”) reflect its strong competitive position in the Nigeria microfinance banking subsector, being one of only two microfinance banks listed on the local bourse and one of eight microfinance banks (“MFB”) licensed to operate nationally in Nigeria presently. Furthermore, the profile of Fortis’ management team in terms of experience is considered satisfactory.

The financial support from the bank’s shareholders, demonstrated by retention of earnings and injection of additional capital as required, is noted. Fortis registered a strong compound annual growth rate (“CAGR”) of 43.3% in total capital over the four-year period to FY16, through a combination of internal capital generation and successful capital raising initiatives. Thus, the bank’s shareholders’ funds (net of intangible assets) stood at N4.2bn at FY16, translating to over 2x the statutory minimum requirement for its license category, and an adequate capital adequacy ratio of 24% (compared with the 10% statutory requirement).

Fortis displayed strong asset quality (in its loans and advances portfolio) over the five-year review period to FY16. While the challenging macroeconomic environment in the country saw the non-performing loan ratio (“NPL”) ratio rise to 3.9% in FY16 from 3.0% in FY15, management considered the deterioration to be temporary, with normalisation of the NPL ratio to around 3.0% at end- 1Q FY17 providing additional comfort. Capital protection appears strong, considering the low net NPL/capital ratio of 7.8% at FY16.

Fortis’ performance was mixed over the review period to FY16. Steady improvement in profitability was recorded in the three years to FY14, followed by declines in FY15 and FY16. Although consistent growth in interest revenue was maintained throughout the review period, profitability was constrained by high interest expenses in FY15 and operating expenditure (mainly staff-related costs) in FY16. The cost ratio trended upward from a trough of 42.6% in FY14, rising to 49.7% and 56.2% in FY15 and FY16 respectively. Consequently, a lower net profit after tax of N571m was reported for the FY16 year, representing a 2.2% decline over FY15. The decline in profitability together with an enlarged capital base drove the reduction in ROaE to 16.5% in FY16 (FY15: 24.4%), while the ROaA also declined to 2.8% (FY15: 3.2%).

Reversal of the recent negative performance trajectory and establishment and sustenance of a strong track record (in profitability, liquidity and the asset quality position), as well as a strengthened competitive position, could trigger a positive rating action. A negative rating action may follow sustained negative pressure on the bank’s profitability, asset quality and liquidity indicators.

 

NATIONAL SCALE RATINGS HISTORY

Initial/last rating (June 2017)

Long term: BBB-(NG)

Short term:  A3(NG) Outlook: Stable

ANALYTICAL CONTACTS

Primary Analyst

Julius Adekeye

+23 41 462 2545

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Committee Chairperson Dave King

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APPLICABLE METHODOLOGIES AND RELATED RESEARCH

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

Nigerian Financial Institutions Overview, 2017

Glossary of Terms/ Ratios (February 2016)

 

RATING LIMITATIONS AND DISCLAIMERS

ALL GCR’S CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.COM.NG/UNDERSTANDING-RATINGS. IN ADDITION, GCR’S RATING SCALES AND DEFINITIONS ARE ALSO AVAILABLE FOR DOWNLOAD AT THE FOLLOWING LINK:  HTTP://GLOBALRATINGS.COM.NG/RATINGS-INFO/RATING-SCALES-DEFINITIONS. GCR’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, PUBLICATION TERMS AND CONDITIONS AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE AT HTTP://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, Fortis Microfinance Bank Plc, and therefore, GCR has been compensated for the provision of the ratings.

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

The information received from Fortis Microfinance Bank Plc and other reliable third parties to accord the rating included the audited annual financial statements of Fortis Microfinance Bank Plc for five years, up to 31 December 2016 and other detailed information related to the bank’s operations.

 

 

 

 

 

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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