GCR Affirms Nigeria Mortgage Refinance Company Plc’s rating of A-(NG); Positive Outlook
Lagos Nigeria, 15 January 2021–Global Credit Ratings has affirmed the national scale issuer rating assigned to Nigeria Mortgage Refinance Company Plc of A-(NG) and A2(NG) in the long term and short term respectively; with the outlook accorded as Positive. The rating is valid until October 2021.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has affirmed the above rating to Nigeria Mortgage Refinance Company Plc (“NMRC” or “the company”) based on the following key criteria:
The accorded ratings reflect NMRC’s operational uniqueness as a private sector entity with a public purpose. 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. Furthermore, cognisance has been taken of the company’s strong capitalisation, improved financial performance, liquidity and risk position.
NMRC’s capitalisation is considered satisfactory vis-a-vis its current risk level. Shareholders’ funds grew significantly 26.7% to N16.7bn at FY19, underpinned by sound internal capital generation and translated to an improved risk weighted capital adequacy ratio of 70% at the balance sheet date, exceeding the regulatory minimum of 10% by a comfortable margin. NMRC has over the years demonstrated strong commitment to capital preservation, with dividend paid for the first time in 2020.
Liquidity risk has been well mitigated through maintaining a highly liquid balance. A sizeable 73.9% of NMRC’s asset base were held in cash and liquid assets at FY19. Furthermore, the contractual matching of assets and liabilities maturities showed a cumulative liquidity buffer across all maturity bands, with liquidity buffer amounting to N19bn within the most critical ‘less than three-month’ maturity band.
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 performance improved significantly in FY19, with pre-tax profit growing year-on-year 59.2% to N3.1bn. Performance was largely driven by increased mortgage refinance loans, as well as yields on investments. Further augmenting the company’s performance for the year was the less aggressive 10.2% growth in operating expenses vis-a-vis the firmer growth in total operating income (38.7%) during the year. Overall, return on average equity and assets strengthened to 20.2% and 4.2% in FY19 (FY18: 14.8% and 3.3%), respectively. Unaudited results as at 3Q FY20 reflects a pre-tax profit of N2.5bn, which compares favourably with the corresponding period in FY19 and FY20 budget on annualised basis.
The 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/last rating (May 2015)
Long term: A-(NG)
Short term: A2(NG)
Last rating (November 2019)
Long term: A-(NG)
Short term: A2(NG)
Senior Credit Analyst
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APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Master Criteria for Rating Banks and Other Financial Institutions, updated March 2017
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