GCR Assigns Rand Merchant Bank Nigeria Limited a National Scale Rating of A(NG); Outlook Stable

12 Apr 2016 In Rating Notifications

GCR Assigns Rand Merchant Bank Nigeria Limited a National Scale Rating of A(NG); Outlook Stable

Lagos, 12 April 2016—Global Credit Ratings has accorded national scale long-term and short-term ratings of A(NG) and A1(NG) respectively to Rand Merchant Bank Nigeria Limited (“RMBNL”); with the outlook accorded as Stable. The ratings are valid until October 2016.

RATING RATIONALE

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

Although Rand Merchant Bank Nigeria Limited (“RMBNL” or “the bank”) has a short (less than four years) operating history in Nigeria, the bank enjoys good brand acceptance on account of the strong operational track record of its parent, the FirstRand Limited Group (“FirstRand” or “the parent”), a large and systemically important South African domiciled financial institution. The available technical from the parent has also been favourably considered.

As a recently-formed institution, RMBNL has a cautious approach to risk, as illustrated by its low leverage. At FYE15, 11.7% of liability funding had been utilised to grant loans (FYE14: 6.5%).

RMBNL is considered well capitalised for its current risk level, with a risk weighted capital adequacy of 75.2% at 31 December 2015. The bank’s total shareholders’ funds stood at N21.2bn as at the balance sheet date, representing a 29.2% increase over the previous year. The growth was significantly aided by an injection of fresh equity capital of N3bn by the parent during the year.

Liquidity risk has been largely mitigated by the bank’s highly liquid balance sheet, with its liquid and trading asset portfolios comprising a notable 88.8% of the bank’s asset base at 31 December 2015. This partly reflects the bank’s early stage of development, merchant banking focus, and cautious approach to credit risk taking. RMBNL’s liquid and trading assets/total short term funding ratio of 161.1% at 31 December 2015 (FYE14:204.2%) remained well above the peer average.

The accorded ratings also considered the bank’s strong asset quality (in terms of the loans and advances portfolio), with no non-performing loans reported from inception to date, partly as a result of limited lending activities being undertaken.

The bank’s highly liquid balance sheet has had negative implications for its profitability and efficiency. Its key efficiency indicators weakened in F15, as operating expenses increased 31.7% (mainly driven by staff related costs and share issue expenses), accelerating the bank’s cost ratio to 73.6% (F14: 64.7%). While advances growth delivered a strong 135.2% increase in net interest income, performance at the total operating income (“TOI”) level was constrained by decline in non-funded revenue (reflecting the general slowdown in Nigerian capital market activities in 2015), narrowing growth at the TOI level to 15.7%. Overall, the RMBNL’s ROaE and ROaA weakened to 8.2% and 2.3% in F15 from 11.0% and 5.0% in 2014 respectively.

Improvement in the bank’s market share, efficiency and ultimately profitability, in addition to sustaining strong asset quality may result in a ratings upgrade. The accorded ratings were based on the bank’s unaudited financial statements as at 31 December 2015. A significant unfavourable change in the bank’s financial position post audit, and/or a change in the bank’s support structure, may result in negative rating action.


NATIONAL SCALE RATINGS HISTORY

Initial/last rating (not applicable)
Long term: (first time/new rating)
Outlook: (first time/new rating)

ANALYTICAL CONTACTS

Primary Analyst                                                                                                                                                 
Julius Adekeye                                                                                                                                                
+23 41 462 2545                                                                                                                                          
.(JavaScript must be enabled to view this email address)


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

Rand Merchant Bank 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 Rand Merchant Bank Nigeria Limited with no contestation of/changes to the ratings.

The information received from Rand Merchant Bank Nigeria Limited and other reliable third parties to accord the credit rating included the unaudited management accounts as at 31 December 2015 (plus two years audited financial statements, up to 2014), latest internal and external audit report to management, full year detailed budgeted financial statements up to 31 December 2015. 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.

CREDIT RATINGS ISSUED AND RESEARCH PUBLICATIONS PUBLISHED BY GCR, ARE GCR’S OPINIONS, AS AT THE DATE OF ISSUE OR PUBLICATION THEREOF, OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. GCR DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL AND/OR FINANCIAL OBLIGATIONS AS THEY BECOME DUE. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: FRAUD, MARKET LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND GCR’S OPINIONS INCLUDED IN GCR’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND GCR’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND GCR’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL OR HOLD PARTICULAR SECURITIES. NEITHER GCR’S CREDIT RATINGS, NOR ITS PUBLICATIONS, COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. GCR ISSUES ITS CREDIT RATINGS AND PUBLISHES GCR’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING OR SALE.

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