Lagos Nigeria, 6 September 2018–Global Credit Ratings has affirmed the national scale ratings assigned to Rand Merchant Bank Nigeria Limited of A(NG) and A1(NG) in the long term and short term respectively; with the outlook accorded as Positive. The ratings are valid until July 2019.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit ratings to Rand Merchant Bank Nigeria Limited (“RMBN” or “the bank”) based on the following key criteria:
The rating takes into consideration, RMBN’s improved competitive position over the last five years of operation, risk-controlled growth in lending and liquid balance sheet. Also, cognisance is taken of the available support from FirstRand Group (“FirstRand” or “the parent”). FirstRand is a leading South African financial services group and the ultimate parent of RMBN.
Asset quality remained sound throughout RMBN’s five years of operations, with gross non-performing loan ratio maintained as Nil at FY17. Also, the bank maintained a cautious approach towards risk asset creation.
Capitalisation is considered adequate for its current risk level. Shareholders’ funds grew significantly from N16.1bn at FY13, to N29.1bn at FY17, through strong internal capital generating capacity. The risk weighted capital adequacy ratio stood at 42.6% at FY17 (FY16: 55%), which is above the required minimum of 10% for merchant banks.
The bank maintained a highly liquid balance sheet profile throughout the five years of review, with liquid and tradable assets to short term funding ratio trending above 150% throughout the period. Regulatory liquidity ratio closed FY17 at 115% (FY16: 236%). Further supporting the funding base was USD180m borrowings from the parent in FY17. Management has also informed GCR of the intention to raise long term funding through debt issuance before the end of FY18.
Key profitability metrics improved significantly in FY17, underpinned by the rise in asset pool and the subsequent increase in business volume. As such, net interest income rose to N5.2bn from N3.3bn in FY16, while non-interest income equalled N7.1bn in FY17 from N0.6bn the previous year (although, growth in non-interest income was supported by N5.4bn net gains on foreign exchange “FX”). Despite the increase in staff, operating expenses grew by a moderate 6.6%, and led to a profit before tax of N7.3bn (FY16: loss of N123m). Consequently, return on average equity and assets increased to 28.2% and 7.4% in FY17 (FY16: -0.6% and -0.2%) respectively.
The rating was placed on positive outlook following a further improvement in performance metrics at 1H FY18, with pre-tax profit outpacing budgeted figures on annualised basis.
While the anticipated parental support has been factored into the assigned ratings, an upward movement in the rating may follow a sustained profitability and earnings quality. The rating may be adjusted downwards following a decline in asset quality or profitability which could impact on capital, or a change in the bank’s support structure.
NATIONAL SCALE RATINGS HISTORY
Initial rating (March 2016)
Long term: A(NG)
Short term: A1(NG)
Last rating (August 2017)
Long term: A(NG)
Short term: A1(NG)
Senior Credit Analyst
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APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Criteria for rating Banks and Other Financial Institutions, updated March 2017
Glossary of Terms/Ratios, February 2016
RMBNL rating reports, (2016-17)
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, Rand Merchant Bank Nigeria Limited, and therefore, GCR has been compensated for the provision of the ratings.
Rand 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 and contested by Rand Merchant Bank Nigeria Limited and were reconsidered, and accorded following the provision of year to date management account.
The information received from Rand Merchant Bank Nigeria Limited and other reliable third parties to accord the credit rating included the audited accounts as at 31 December 2017 (plus four years of comparative audited financial statements), latest internal and external audit report to management, and full year to date budgets and management account to 30 June 2018. In addition, information specific to the rated entity and/or industry was also received.