Lagos Nigeria, 25 January 2019–Global Credit Ratings has affirmed the national scale ratings assigned to TrustBond Mortgage Bank Plc of BB+(NG) and A3(NG) in the long and short term respectively; with the outlook accorded as Stable. The ratings are valid until September 2019.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit ratings to TrustBond Mortgage Bank Plc (”TrustBond” or “the bank”) based on the following key criteria:
TrustBond’s competitive position in the challenging mortgage banking subsector, strong capitalisation but with weak internal capital generation, and the sustained weakening in asset quality over the last two years of review.
Capitalisation is considered strong, given the leverage ratio (equity/total assets of 41.6%, albeit had continued to moderate in the past four years). A share reconstruction exercise during the year saw total issued shares of the bank reduced to 4.7bn from 5.8bn at FY16. Risk weighted capital adequacy ratio (“RWCAR”) declined to 26.1%, driven by a higher growth in risk asset compared to the bank’s internal capital generating capacity. However, RWCAR remained well above the regulatory minimum of 10% for primary mortgage banks.
Net profitability was relatively stable at N102.1m in FY17. Decline in non-funded income, coupled with increased credit losses and operating expenses constrained bottom line growth. 3Q FY18 performance continues to lag expectations, with pressure on earnings coming from credit losses and lower business volumes. Overall, return on average equity and asset were relatively stable at 1.9% and 0.8% respectively FY17 and GCR expects ratios to remain within this range over the short-term.
Asset quality metrics remained under pressure throughout FY17 and persisted to 3Q FY18, with the gross non-performing loan (“NPL”) ratio standing at 27.7% and 28.3% at FY17 and 3Q FY18 respectively. Loan loss reserve coverage of 8.7% is broadly in line with mortgage banking sector standards, as much of the risk mitigation is the asset financed. However, note is taken of the rigorous judicial process involved in realising collaterals in Nigeria.
Liquidity is adequate in comparison with peer average, although short of the best performing. Liquidity ratio moderated during the year, however, at 52% it evidences good headroom over regulatory minimum of 20% for PMBs.
An upward movement in the rating may follow an improvement in asset quality metrics, profitability and the bank’s market share. However, the rating may be reviewed downward following a sustained or further decline in asset quality metrics, a significant decline in profitability and/or liquidity.
NATIONAL SCALE RATINGS HISTORY
Initial rating (August 2016)
Long term: BB+(NG)
Short term: A3(NG)
Last rating (October 2017)
Long term: BB+ (NG)
Short term: A3(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
TrustBond 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, TrustBond Mortgage Bank Plc, and therefore, GCR has been compensated for the provision of the ratings.
TrustBond Mortgage Bank Plc Limited 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 TrustBond Mortgage Bank Plc with no contestation of/changes to the ratings.
The information received from TrustBond Mortgage 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 2017 detailed budgeted financial statements, year-to-date audited accounts to 30 September 2018, reserving methodologies and capital management policies. In addition, information specific to the rated entity and/or industry was also received.