Lagos, 05 May 2022 – GCR Ratings (“GCR”) has affirmed Development Bank of Nigeria Plc’s (“DBN”) national scale long- and short-term issuer ratings of AAA(NG) and A1+(NG) respectively, with a Stable Outlook.
|Rated Entity / Issuer||Rating class||Rating scale||Rating||Outlook / Watch|
|Development Bank of Nigeria Plc||Long Term||National||AAA(NG)||Stable Outlook|
The affirmation of DBN’s ratings reflect the gradual stability in delivery of its mandate, solid capital base, minimal risk exposures and sound liquidity metrics.
DBN is a wholesale development finance institution, licensed by the Central Bank of Nigeria (“CBN”), with the mandate of improving access to financing for the micro, small and medium scale enterprises’ (“MSMEs”), by providing wholesale financing, provision of technical assistance and credit guarantee to eligible participating financial institutions (‘PFIs’). While DBN is focused on the performance of the first two aspects of its mandate, the last one is performed through a wholly owned subsidiary of the bank, Impact Credit Guarantee Limited. DBN has steadily grown its loan book over the last 5 years of operation, from N182m at FY17 to N322bn as at December 2021. Similarly, number of registered PFIs have increased to 51, and disbursed to about 28 PFIs as at balance sheet date. However, competitive position remains constrained by overall size of its portfolio relative to larger banking industry, the growing but relatively short track record, single product offering and limitation in the number of PFIs the bank can serve. We expect competitive position score to remain largely the same in the short term and improve gradually over the medium to long-term as disbursements and distribution through the PFIs increases.
Management and governance is neutral to the rating, given the robustness of the board, with representation by the Federal Government of Nigeria (FGN) and other international partners.
DBN’s strong capital base remains a key strength in support of the rating. Though GCR’s tier 1 capital to risk weighted asset ratio declined to 51% at FY21 from 60% at audited FY20, the ratio is considered strong and well above regulatory minimum. While we expect the capital adequacy ratio to continue to moderate as the bank scales up operations and grow risk assets, our forecast shows that the metrics will remain strong over the next 12-18months.
Overall risk exposure is considered minimal and a neutral score to the rating. Total loan book grew 50% to N322bn at FY21, this is considered modest compared to credits in the industry. Also, DBN’s non-performing loans remains as nil from inception to date and no exposure to foreign exchange risk. The bank’s underwriting process is supported by its strict risk acceptance criteria for different categories of PFIs, and the fact that all its loans are backed by a direct debit mandate (where possible) on the PFI’s accounts with CBN remains a rating positive. While concentration of exposures to the financial institutions sector remains unchanged, risk position is expected to remain sound over the next 12-18months.
Funding and liquidity profile is considered a strength to the rating. DBN maintained a highly liquid balance sheet throughout the review period. Also, operations are funded through long tenored wholesale funds obtained from international development financial institutions through the Federal Government of Nigeria. Management has informed GCR of the ongoing registration process of a N100bn programme with the plan to issue a part of it before year-end. Going forward, we expect funding and liquidity to remain solid over the next 12-18months.
The Stable Outlook reflects our expectation that DBN will maintain strong financial profile which would help absorb exposures from the growing risk assets over the next 12-18 months. Earnings is expected to continuously reflect core operations as risk assets continues to grow, which is a positive to the earnings profile.
The ratings may be downgraded following a significant decline in capital adequacy ratios and or a deterioration in liquidity or asset quality metrics.
|Primary analyst||Funmilayo Abdulrahman||Senior Analyst, Financial Institutions|
|Lagos, NG||Funmilayo@GCRratings.com||+234 1 904 9462|
|Committee chair||Vinay Nagar||Senior Analyst, Financial Institutions Head of Ratings|
|Johannesburg, ZA||Vinay@GCRratings.com||+27 11 784 1771|
Related Criteria and Research
|Criteria for the GCR Ratings Framework, January 2022|
|GCR Financial Institutions Sector Risk Score, December 2021|
|GCR Ratings Scale, Symbols & Definitions, May 2019|
|GCR Country Risk Scores, December 2021|
Development Bank of Nigeria Plc
|Rating class||Review||Rating scale||Rating||Outlook||Date|
|Long Term Issuer||Initial/last||National||AAA(NG)||Stable||May 2021|
|Short Term Issuer||Initial/last||National||A1+(NG)|
Risk Score Summary
|Rating Components & Factors||Risk scores|
|Country risk score||3.75|
|Sector risk score||3.50|
|Management and governance||0.00|
|Capital and leverage||4.00|
|Funding and liquidity||1.00|
|Balance Sheet||Also known as Statement of Financial Position. A statement of a company’s assets and liabilities provided for the benefit of shareholders and regulators. It gives a snapshot at a specific point in time of the assets the company holds and how they have been financed.|
|Capital||The sum of money that is invested to generate proceeds.|
|Cash||Funds that can be readily spent or used to meet current obligations.|
|Debt||An obligation to repay a sum of money. More specifically, it is funds passed from a creditor to a debtor in exchange for interest and a commitment to repay the principal in full on a specified date or over a specified period.|
|Diversification||Spreading risk by constructing a portfolio that contains different exposures whose returns are relatively uncorrelated. The term also refers to companies which move into markets or products that bear little relation to ones they already operate in.|
|Exposure||Exposure is the amount of risk the holder of an asset or security is faced with as a consequence of holding the security or asset. For a company, its exposure may relate to a particular product class or customer grouping. Exposure may also arise from an overreliance on one source of funding. In insurance, it refers to an individual or company’s vulnerability to various risks|
|Income||Money received, especially on a regular basis, for work or through investments.|
|Interest||Scheduled payments made to a creditor in return for the use of borrowed money. The size of the payments will be determined by the interest rate, the amount borrowed or principal and the duration of the loan.|
|Issuer||The party indebted or the person making repayments for its borrowings.|
|Leverage||With regard to corporate analysis, leverage (or gearing) refers to the extent to which a company is funded by debt.|
|Liquidity||The speed at which assets can be converted to cash. It can also refer to the ability of a company to service its debt obligations due to the presence of liquid assets such as cash and its equivalents. Market liquidity refers to the ease with which a security can be bought or sold quickly and in large volumes without substantially affecting the market price.|
|Long Term Rating||See GCR Rating Scales, Symbols and Definitions.|
|Margin||A term whose meaning depends on the context. In the widest sense, it means the difference between two values.|
|Market||An assessment of the property value, with the value being compared to similar properties in the area.|
|Maturity||The length of time between the issue of a bond or other security and the date on which it becomes payable in full.|
|Rating Outlook||See GCR Rating Scales, Symbols and Definitions.|
|Risk||The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.|
|Short Term Rating||See GCR Rating Scales, Symbols and Definitions.|
|Short Term||Current; ordinarily less than one year.|
Salient Points of Accorded Ratings
GCR affirms that a.) no part of the ratings were influenced by any other business activities of the credit rating agency; b.) the ratings were based solely on the merits of the rated entity, security or financial instrument being rated; and c.) such ratings were an independent evaluation of the risks and merits of the rated entity, security or financial instrument.
The credit rating has been disclosed to Development Bank of Nigeria Plc. The rating above was solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the rating.
Development Bank of Nigeria Plc participated in the rating process via telephonic management meetings, and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible. The information received from Development Bank of Nigeria Plc and other reliable third parties to accord the credit ratings included:
- Audited financial results as at 31 December 2021;
- Other relevant information.