Lagos Nigeria, 08 August 2018 -Global Credit Ratings has today affirmed the national scale ratings assigned to Stanbic IBTC Bank PLC of AA-(NG) and A1+(NG) in the long and short term respectively; with the outlook accorded as Stable. The ratings are valid until July 2019.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit ratings to Stanbic IBTC Bank PLC (“Stanbic” or “the bank”) based on the following key criteria:
Stanbic IBTC is a Tier 2 bank wholly owned by Stanbic IBTC Holdings PLC (“the Holdco” or “the group”), which is a member of the Standard Bank Group (“SBG”). The bank’s competitive position strengthened in FY17, underpinned by an improved market share of 3.9% (FY16: 3.1%) based on total industry assets. A key rating strength is the implied financial, and technical support from its ultimate parent, SBG (the largest banking group in Africa, in terms of balance sheet size and earnings).
Stanbic IBTC is considered adequately capitalised for its current risk level, with a relatively stable regulatory risk weighted capital adequacy ratio (“CAR”) of 20.5% at FY17 (FY16: 21.0%), well above the regulatory minimum of 10%. Shareholders’ funds registered at N138.7bn at FY17, representing a four-year compounded annual growth rate (“CAGR”) of 16.9% over the review period.
Asset quality came under pressure in FY17 on the back of the challenging macro-economic environment constraining debt serviceability of obligors. As a result, the bank’s non-performing loans (“NPL”) rose by a notable 69.5% to N31.7bn, translating to NPL ratio of 7.9% at FY17 (FY16: 5.0%), above CBN’s tolerable limit of 5%. Notwithstanding this, specific provision coverage of NPLs improved to 65.9% (FY16: 59.9%). According to management, intensified effort on recoveries as well as loan restructuring within troubled sectors (particularly communication, real estate and oil and gas) is expected to positively impact on asset quality going forward.
Stanbic IBTC maintains a conservative funding and liquidity profile, with a sizeable portion of its assets held in cash and highly liquid investment securities. In this regard, the bank’s regulatory liquidity ratio was maintained above 72.1% throughout FY17, against the required minimum of 30%. Also, the bank’s liquid and trading assets to total short-term funding ratio of 68.9% compares favourably with peers’ average at FY17.
The bank reported an after tax profit of N28.8bn in FY17, representing a notable 91.9% year-on-year growth. While net interest income was largely supported by improved investment yields, non-interest income was driven by increased earnings from the trading book (fixed-income and foreign exchange gains). Overall, key profitability indicators strengthened, with returns on average equity and assets (“ROaE” and “ROaA”) improving to 23.3% and 2.6% (FY16: 14.7% and 1.6%) respectively. At 1Q FY18, the bank posted a pre-tax profit of N16.6bn, supporting a positive profitability trend expected over the rating horizon.
Maintaining strong financial metrics in terms of profitability, asset quality and capitalisation, and a further strengthening of the bank’s competitive position in the domestic market, would be favourably considered. However, The ratings are sensitive to a sharp deterioration in key asset quality indicators, earnings, capital adequacy and liquidity, as well as a reduction in the assessment of shareholders’ support.
NATIONAL SCALE RATINGS HISTORY
Initial rating (December 2006)
Long term rating: AA-(NG)
Short term rating: A1(NG)
Rating outlook: Stable
Last rating (September 2017)
Long term rating: AA-(NG)
Short term rating: A1+(NG)
Rating outlook: Stable
Yinka Adeoti/Julius Adekeye
+234 1 904-9462
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Criteria for rating Banks and Other Financial Institutions, updated March 2017
Glossary of Terms/Ratios, February 2016
Stanbic rating reports (2006-17)
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, Stanbic IBTC Bank PLC, and therefore, GCR has been compensated for the provision of the ratings.
Stanbic IBTC Bank PLC participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.
The credit ratings above were disclosed to Stanbic IBTC Bank PLC with no contestation of/changes to the ratings.
The information received from Stanbic IBTC Bank PLC and other reliable third parties to accord the credit ratings included the latest audited annual financial statements as at 31 December 2017 (plus four years of comparative numbers), latest internal and/or external report to management, full year 2018 detailed budgeted financial statements, year-to-date audited accounts to 31 March 2018, reserving methodologies and capital management policies. In addition, information specific to the rated entity and/or industry was also received.