Lagos Nigeria, 01 July 2020 -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 Stable. The ratings are valid until June 2021.
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 ratings accorded to RMBN, in addition to its standalone competitive capacity, factored in the strong technical and financial support from FirstRand Group, a leading South African financial services group. Particularly, the steady improvement in RMBN’s key performance metrics (profitability, capitalisation and liquidity) over the review period was duly considered. Also, the ratings take cognisance of the macroeconomic challenges and uncertainties.
RMBN is considered adequately capitalised for its current risk level, with a risk weighted capital adequacy ratio of 50.1% at FY19 (FY18: 48.9%), well above the regulatory minimum of 10% for merchant banks. Underpinned by strong internal capital generation, shareholders’ funds grew consistently over the years and stood at N54bn at FY19, representing a compound annual growth rate of 25.1% over a five-year review period. The robust capital level provides sufficient headroom for loss absorption in the short to medium term.
RMBN’s asset quality remains strong, with nil non-performing loans recorded from inception to date. Total loan loss provision stood at N1.2bn at FY19 and was made in line with IFRS 9 accounting standard and Central Bank of Nigeria’s prudential guideline.
The bank displayed sound liquidity profile in FY19, closing the year with a strong statutory liquidity ratio of 147%, significantly surpassing the 20% regulatory minimum. Specifically, the ratio of liquid and trading assets to total short-term funding is considered strong at 150.4% at the balance sheet date (FY18: 186.3%), comparing favourably with peers’ average.
The bank’s profitability indicators improved in FY19, with pre-tax profit increasing year-on-year by 65% to N16.5bn. Both net interest income and non-funded income streams registered strong growth, fuelled by improved yields on investment securities and an enhanced trading capacity respectively, thus translating to a firmer total operating income of N23.9bn in FY19 (FY18: N16.7bn). Stronger revenue growth vis-à-vis the less aggressive 12.8% growth in operating expenses saw the cost ratio moderate to 30.9% in FY19 (FY18: 39.3%). Overall, return on average equity and asset strengthened to 34.8% and 10.1% in FY19 (FY18: 29.4% and 6.2%) respectively. Unaudited results as at 1Q FY20 reflects a pre-tax profit of N4.0bn, which compares well with the corresponding period in 2019.
An upward movement in the ratings may follow a sustained improvement in profitability and capitalisation, while maintaining sound asset quality metrics. However, a downward rating may be triggered by a material deterioration in profitability, asset quality and capitalisation metrics or an unfavourable 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 (July 2019)
Long term: A+(NG)
Short term: A1(NG)
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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
RMBN rating reports, (2016-19)
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 rating above was disclosed to Rand Merchant Bank Limited with no contestation of/changes to the rating.
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 2019 (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 31 March 2020. In addition, information specific to the rated entity and/or industry was also received.