Johannesburg, 17 Oct 2013 — Global Credit Ratings has affirmed the long term national scale and affirmed the short term national scale issuer ratings assigned to FSDH Merchant Bank Limited of A-(NG) and A2(NG) respectively; with the outlook accorded as Stable. The rating(s) are valid until 10/2014.
Global Credit Ratings has accorded the above credit rating(s) on FSDH Merchant Bank Limited based on the following key criteria:
FSDH Merchant Bank Limited’s (“FSDH” or “the bank”) strong brand acceptance, derived from its tenure and performance history as a discount house; FSDH was the first discount house in Nigeria and remained a market leader until its conversion to a merchant bank in January 2013. Presently, 5 Nigerian commercial banks own a combined equity stake of 29.2% in FSDH. As such, the bank’s ownership base/structure is set to change going forward, as the Nigerian banking laws do not permit a deposit money bank to have an equity stake in another, non-related, non-core banking entity.
The bank’s liquidity risk is considered moderate, given its fairly liquid balance sheet, with its cash and liquid assets/total short term funds ratio standing at 39.8% at end-June 2013. Furthermore, FSDH’s prudential liquidity ratio remained strong throughout the review period, recorded at 110.6% by end-June 2013, well above the prudential requirement of 20%.
FSDH is well capitalised, with total shareholders’ funds of N19.3bn at end-June 2013, well above the statutory capital requirement. Further, with a low appetite for risk, the bank ended up with a strong Tier I risk weighted capital adequacy ratio of 53% at the balance sheet date, against a prudential requirement of 10%.
An unaudited pre-tax profit of N617m was recorded for the first half of F13, lagging the full year’s forecast by 18.9% on an annualised basis.
Positive rating movement/s: An increased access to deposits and establishing/maintaining a strong performance track record.
Negative rating movement/s: The accorded ratings would be sensitive to the following: (i) a change in the bank’s risk profile with evidence of pressure on asset quality, (ii) dwindling brand recognition/competitive position and profitability, and (iii) an inability to attract suitable investors to replace the existing bank shareholders.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (Feb/2013)|
|Long term: A-(NG); Short term: A2(NG)|
|Last rating (Feb/2013)|
|Long term: A-(NG); Short term: A2(NG)|
|+23 41 462 2545|
|Sector Head: Financial Institution Ratings|
|+27 11 784 1771|
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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.
FSDH Merchant Bank Limited participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.
The credit rating/s has been disclosed to FSDH Merchant Bank Limited with no contestation of the rating.
The information received from FSDH Merchant Bank Limited and other reliable third parties to accord the credit rating included the latest available audited annual financial statements (plus four years of comparative numbers), latest internal and/or external report to management, full year detailed budgeted financial statements, most recent year to date management accounts, corporate governance and enterprise risk framework, reserving methodologies, capital management policy, Industry comparative data and regulatory framework and a breakdown of facilities available and related counterparties.
The ratings above were solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the ratings.