Announcements Financial Institutions Rating Alerts

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

Lagos, 24 September 2018–Global Credit Ratings has affirmed FBNQuest Merchant Bank Limited’s public national scale ratings of A-(NG) and A2(NG), in the long and short term respectively; with the outlook accorded as Stable. The ratings are valid until August 2019.

RATING RATIONALE

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

FBNQuest Merchant Bank Limited (“FBNQ MB” or “the bank”), formerly FBN Merchant Bank Limited, enjoys strong brand acceptance in Nigeria, underpinned by its status as a subsidiary of FBN Holdings Plc, as well as its established track record during its discount house operations; Until its acquisition by FBN Holdings Plc (“the Group”), the bank was rendering discount house services, operating as Kakawa Discount House Limited.

FBNQ MB’s Tier 1 capital level of N26.3bn is considered satisfactory, notwithstanding the 9% decline in shareholders’ funds on account of dividend pay-outs during FY17. The reduction in capital level, coupled with increase in risk weighted assets, saw the bank’s Tier 1 capital adequacy ratio (“CAR”) dip to 16.3% at FY17 (FY16: 25.9%). Nevertheless, the CAR level still indicates a significant buffer above the 10% statutory minimum requirement.

FBNQ MB’s key liquidity metrics remained at acceptable level during FY17, with the net advances/ deposit and total short-term funding standing at 39.5% at FY17 (FY16: 40.2%). Particularly, liquidity risk is significantly mitigated by the fact that Federal Government of Nigeria securities comprised 39.2% of the bank’s asset base at the balance sheet date.

FBNQ MB’s asset quality (in terms of loan portfolio) is considered satisfactory, with impaired exposures declining by 12.3% to N1.3bn at FY17. Additionally, the reported impaired exposure is backed by government guarantee, thus implying a good recovery prospect ultimately.

On the back of an 11% decline in FY16, net interest income improved by 48.2% to N6.9bn in FY17, while non-funded revenue grew by 50.1% to N5.0bn (lifting growth at the total operating income (“TOI”) to 49.0%). However, an outpacing 102.9% rise operating expenses impacted negatively on efficiency indicators, with the cost ratio ending up at 54.2% (FY16:39.8%), keeping the bank’s pre-tax profit flat N4.9bn. The bank’s budget for FY18 was not available, thus making comparison of the 1H FY18’s interim results against budget impossible. While FBNQ MB’s performance at the TOI level in the 1H FY18 slightly lagged the FY17’s full year result on annualised basis, escalation in operating expenses further widened the underperformance at the pre-tax level. A pre-tax profit of N1.6bn was reported for the period, translating to annualised 34.8% decline relative to FY17’s full year results.

The rating may be adjusted upward following a sustained improvement in profitability and asset quality. Likewise, the rating may be negatively impacted by a deterioration in asset quality metrics, liquidity and or the capitalisation level.

NATIONAL SCALE RATINGS HISTORY

Initial rating (June 2006)*
Long term: A(NG)
Short term: A1(NG)
Outlook: Stable

Last rating (July 2017)
Long term: A-(NG)
Short term: A2(NG)
Outlook: Stable

*Refers to ratings of Kakawa Discount House Limited.

ANALYTICAL CONTACTS

Primary Analyst Committee Chairperson
Julius Adekeye Dave King
+23 41 904 9462-3 king@globalratings.net
adekeye@globalratings.net

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Criteria for Rating Banks and Other Financial Institutions, updated March 2017
FBNQ MB rating report (2017)
Kakawa rating reports (2006-15)
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: . IN ADDITION, GCR’S RATING SCALES AND DEFINITIONS ARE ALSO AVAILABLE FOR DOWNLOAD AT THE FOLLOWING LINK: . 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 12 months, or as indicated by the applicable credit rating document.

The ratings were solicited by, or on behalf of, FBNQuest Merchant Bank Limited, and therefore, GCR has been compensated for the provision of the ratings.

FBNQuest 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 FBNQuest Merchant Bank Limited with no contestation of the ratings.

The information received from FBNQuest Merchant Bank Limited and other reliable third parties to accord the credit ratings included the latest audited financial statements at 31 December 2017 (plus one year of audited comparative numbers), most recent management accounts to 30 June 2018. In addition, information specific to the rated entity and/or industry was also received

image_pdf


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://GCRRATINGS.COM. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT WWW.GCRRATINGS.COM/RATING_INFORMATION. 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 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.

Copyright © 2022 GCR INFORMATION PUBLISHED BY GCR MAY NOT BE COPIED OR OTHERWISE REPRODUCED OR DISCLOSED, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT GCR’S PRIOR WRITTEN CONSENT. Credit ratings are solicited by, or on behalf of, the issuer of the instrument in respect of which the rating is issued, and GCR is compensated for the provision of these ratings. Information sources used to prepare the ratings are set out in each credit rating report and/or rating notification and include the following: parties involved in the ratings and public information. All information used to prepare the ratings is obtained by GCR from sources reasonably believed by it to be accurate and reliable. Although GCR will at all times use its best efforts and practices to ensure that the information it relies on is accurate at the time, GCR does not provide any warranty in respect of, nor is it otherwise responsible for, the accurateness of such information.GCR adopts all reasonable measures to ensure that the information it uses in assigning a credit rating is of sufficient quality and that such information is obtained from sources that GCR, acting reasonably, considers to be reliable, including, when appropriate, independent third-party sources. However, GCR cannot in every instance independently verify or validate information received in the rating process. Under no circumstances shall GCR have any liability to any person or entity for (a) any loss or damage suffered by such person or entity caused by, resulting from, or relating to, any error made by GCR, whether negligently (including gross negligence) or otherwise, or other circumstance or contingency outside the control of GCR or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits) suffered by such person or entity, as a result of the use of or inability to use any such information. The ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained in each credit rating report and/or rating notification are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. Each user of the information contained in each credit rating report and/or rating notification must make its own study and evaluation of each security it may consider purchasing, holding or selling. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY GCR IN ANY FORM OR MANNER WHATSOEVER.