Announcements Financial Institutions Rating Alerts

GCR Affirms Coronation Merchant Bank Limited’s National Scale Rating of A-(NG); Outlook Stable

Lagos Nigeria, 07 September 2020 – Global Credit Ratings has affirmed the national scale ratings assigned to Coronation Merchant Bank Limited of A-(NG) and A2(NG) in the long term and short term respectively; with the outlook accorded as Stable. The ratings are valid until July 2021.

SUMMARY RATING RATIONALE

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

The ratings accorded to Coronation MB reflect its strong competitive position, adequate funding and liquidity as well as sound asset quality metrics. The ratings also take into cognisance the elevated risk in the macroeconomic environment, exacerbated by the challenges and uncertainties arising from the COVID-19 pandemic.

Coronation MB’s capitalisation is considered strong relative to its current risk level. Shareholders’ funds grew by 11% to N34.6bn at FY19, underpinned by strong internal capital generation. However, a more aggressive growth in risk weighted assets saw the capital adequacy ratio moderate to 19.2% at FY19 (FY18: 19.6%) and further down to 17.2% at 1H FY20, albeit exceeding the 10% statutory minimum requirement by a comfortable margin.

Asset quality remains strong, with nil non-performing loans recorded from inception of the merchant banking operation to date, reflecting the bank’s stringent risk acceptance criteria. Nevertheless, loan loss provision amounting to N58.3m at FY19 (FY18: N28.4m) was made in line with IFRS 9 accounting standard and Central Bank of Nigeria’s prudential guideline.

The bank’s liquidity position appears strong, with the statutory liquidity ratio standing at 61.2% at FY19, significantly surpassing the 20% regulatory minimum. Also, the ratio of liquid and trading assets to total short-term funding is considered strong at 68.3% at FY19 (FY18: 78.4%), comparing favourably with peers’ average. However, an analysis of the contractual matching of assets and liabilities at FY19 reflected a liquidity gap of N76.6bn (equating to 2.2x of capital) in the ‘less than one-month’ maturity band.

Performance at the post-tax level registered a 6.3% year-on-year growth in FY19, mainly supported by a notable 63.8% reduction in tax expense during the year. Although non-interest income grew by 64.4% on account of increased trading income (fixed-income earnings and foreign exchange gains), a significant 36.7% contraction in net-interest income saw total operating income decline marginally (1.9%) to N10.5bn in FY19. While operating expenses was relatively stable at N5.3bn, cost ratio increased slightly to 51.1% in FY19 (FY18: 50.5%) due to the lower income level. Overall, return on average equity and assets moderated to 14.5% and 2.0% in FY19 (FY18: 14.9% and 2.5%), respectively, due to enlarged capital and asset base.

An upward movement in the ratings may follow a significant improvement in profitability and earnings, while maintaining sound asset quality metrics. Conversely, a downward review of the ratings may result from a significant decline in asset quality metrics, capitalisation or liquidity profile of the bank. Furthermore, a significant decline in earnings or profitability, such that the bank is unable to compete with peers, may lead to a negative rating action.

NATIONAL SCALE RATINGS HISTORY

Initial rating (May 2016)

Long term: A-(NG)

Short term: A2(NG)

Outlook: Stable

Last rating (September 2019)

Long term: A-(NG)

Short term: A2(NG)

Outlook: Stable

ANALYTICAL CONTACTS

Primary Analyst

Yinka Adeoti

Credit Analyst

adeoti@gcrratings.com

+234 1 904 9462-3

Committee Chairperson

Dave King

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

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

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