Lagos, 17 February 2020—Global Credit Ratings has affirmed Nigeria Mortgage Refinance Company Plc’s public national scale ratings A-(NG) and A2(NG), in the long and short term respectively; with the outlook accorded as Stable. The ratings are valid until October 2020.
Global Credit Ratings (“GCR”) has accorded the above credit ratings based on the following key criteria:
The accorded ratings reflect Nigeria Mortgage Refinance Company Plc’s (“NMRC” or “the company”) operational uniqueness as a private sector entity with a public purpose. As such, the ownership base comprised a blend of public sector-related entities and financial institutions. Specifically, two public sector related entities jointly own 36.6% of the company’s paid-up share capital, while the remainder are diversely owned by local financial institutions (banks and non-bank financial institutions). Given the significant equity stake of the public sector-related entities in NMRC, government support for the company is implied and this is corroborated by the demonstrated willingness of Federal Government of Nigeria to provide a full guarantee on the company’s debt issues during its initial operational stage. Furthermore, cognisance has been taken of the company’s capitalisation, risk position and financial performance.
NMRC is well capitalised vis-à-vis its current risk level, with total capital amounting to N13.2bn at FY18, representing a 12.5% year-on-year (“y/y”) growth and translating to a risk weighted capital adequacy ratio of 67% (compared to the 10% statutory minimum requirement). The company has demonstrated strong commitment to capital preservation, with no dividend payment so far. Thus, internal capital generation has supported capitalisation in the five years to FY18, with growth pace accelerated in FY17 by new capital injection via additional shares issue (accelerating growth rate to 36% during the year).
NMRC has largely mitigated liquidity risk through maintaining a highly liquid balance sheet, with liquid and trading assets comprising a notable 74.4% of the balance sheet at FY18 (FY17: 79.2%). Furthermore, a matching of assets and liabilities maturity at FY18 indicated comfortable liquidity buffers across all maturity bands.
The company’s asset quality (in terms of the mortgage refinancing loans) has remained strong, with no default reported from inception to date.
NMRC’s key profitability metrics weakened during the year, with both the ROaE and ROaA declining to 14.8% and 3.3% in FY18 from 18.9% and 4.6% in FY17 respectively. Although increased mortgage refinance pool delivered a 41% rise in the core income stream (mortgage refinancing) to N1.8bn in FY18, the company’s revenue base remained dominated by FGN securities related income, which accounted for 67.3% of the reported interest income for the year. Despite recording a 15.1% improvement in interest income to N7.1bn, outpacing 46.2% increase in interest expenses saw net interest income contract 1.9% to N3.9bn. With inconsequential (N7m) support from non-funded income stream, total operating income registered c.2% y/y decline to N3.9bn.
The establishment and sustenance of a strong financial track record, together with clear evidence of delivery on mandate, would be positively considered. However, a negative rating action may follow a significant deterioration in profitability metrics, evidence of inability to deliver on mandate, as well as reduction in the likelihood of government support.
NATIONAL SCALE RATINGS HISTORY
Initial rating (May 2015)
Rating outlook: Stable
Last rating (October 2018)
Rating outlook: Stable
Senior Credit Analyst
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Criteria for Rating Banks and Other Financial Institutions, updated March 2017
NMRC rating reports 2015-18
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 ratings were solicited by, or on behalf of, Nigeria Mortgage Refinance Company Plc, and therefore, GCR has been compensated for the provision of the ratings.
Nigeria Mortgage Refinance Company 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 ratings above were disclosed to Nigeria Mortgage Refinance Company Plc with no contestation of/changes to the ratings.
The information received from Nigeria Mortgage Refinance Company Plc and other reliable third parties to accord the rating included the audited annual financial statements of Nigeria Mortgage Refinance Company Plc for five years, up to 31 December 2018, the unaudited management accounts for nine months (up to September 2019), and other information specific to the rated entity and/or industry was also received.