Lagos Nigeria, 21 December 2020 — Global Credit Rating has affirmed the national scale rating assigned to Jaiz Bank Plc of BB+(NG) in the long term; with the outlook accorded as Stable. The rating is valid until September 2021.
Global Credit Rating (“GCR”) has accorded the above credit rating to Jaiz Bank Plc (“Jaiz” or “the Bank”) based on the following key criteria:
Jaiz is the foremost fully-fledged non-interest bank in Nigeria, with an operational track record of over eight years. The rating takes into consideration the sustained growth in performance over the last three years of review and particularly with the leap made in FY19. While Jaiz has maintained capitalisation and liquidity metrics at comfortable levels over the years, this is offset by weak asset quality metrics, exacerbated by the recent pandemic and macroeconomic uncertainties.
Capitalisation is considered satisfactory for current operational scale. Shareholder’s fund grew by 18.3% to N15.1bn at FY19 on account of internal capital generation, measuring well above the required minimum of N10bn for its license category. Consequently, risk weighted capital adequacy ratio (“CAR”) stood at 16.4%, displaying a good buffer above the 10% statutory minimum limit. The CAR is expected to remain above the required minimum over the rating horizon.
Gross impaired risk asset declined by 16.5% to N4.8bn in FY19, translating to a non-performing risk asset ratio of 8.2% (FY18: 13.1%). However, with the recent pandemic and the market focus of the bank, impaired finance and investments rose sharply again to N7.3bn as at 1H FY20 and saw the ratio deteriorate to 10.9%. Going forward, management expects the gradual resumption of economic activities to impact positively on recovery.
Jaiz’s liquidity position improved in FY19, with the bank’s statutory liquidity ratio maintained between 33.8% and 44.9% throughout FY19 and ending down at 37.8% at 30 April 2020, well above the 10% statutory minimum requirement. Also, liquid assets to short term funding stood at 53.3% at FY19 (FY18: 47.0%). However, maturity matching of assets and liabilities reflects a liquidity gap of N23.8bn (FY18: N51.3bn) in ‘the less than 90 days maturity bucket’, which is common to the Nigerian banks.
Overall profitability improved in FY19, underpinned by increase in business volume. Total operating income grew year-on-year by 72.9% to N11.8bn, while operating expenses grew less aggressively 38.8% to N8.6bn, driven by increase in staff and administrative cost. Nevertheless, the robust income growth saw the cost ratio moderate to 72.4% (FY18: 90.2%). Consequently, the bank recorded a pre-tax profit of N2.1bn, translating to a significant 135% increase from the previous year (albeit lagged budget by 25%). Return on average equity and asset improved to 17.0% and 1.8% (FY18: 6.2% and 0.9%) respectively. Performance as at 1H FY20 was slightly above annualised budget at N1.3bn, surpassing that of same period in FY19 by 48.7%
The rating may be upgraded following a satisfactory improvement in asset quality metrics and a sustained profitability performance. However, a rating downgrade could arise from a significant decline in profitability, as well as deterioration in asset quality and capitalisation metrics
NATIONAL SCALE RATINGS HISTORY
Initial/ last rating (October 2019)
Rating outlook: Positive
Senior Credit Analyst
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Criteria for Rating Banks and Other Financial Institutions, updated March 2017
Jaiz rating report (2019)
Glossary of Terms/Ratios, February 2016
RATING LIMITATIONS AND DISCLAIMERS
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 rating was solicited by, or on behalf of, Jaiz Bank Plc, and therefore, GCR has been compensated for the provision of the rating.
Jaiz Bank Plc 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 rating above was disclosed to Jaiz Bank Plc with the rating outlook changed from stable to positive following contestation by the bank.
The information received from Jaiz Bank Plc and other reliable third parties to accord the credit rating included the latest audited annual financial statements as at 31 December 2019 (plus four years of comparative numbers), latest internal and/or external report to management, full year budgeted financial statements for 2019, most recent year-to-date management accounts to 30 June 2020, reserving methodologies and capital management policies. In addition, information specific to the rated entity and/or industry was also received.