Announcements Rating Alerts Structured Finance

GCR Affirms TrustBond Mortgage Bank Plc’s Servicer Quality Rating of SQ3+(NG); Stable Outlook.

Lagos Nigeria, 23 January 2019 — Global Credit Ratings has affirmed TrustBond Mortgage Bank Plc’s national scale primary servicer quality rating* of SQ3+(NG); with the outlook accorded as Stable. The rating is valid until September 2019.

RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above servicer quality rating based on the following key criteria:

The primary servicer quality rating accorded to TrustBond Mortgage Bank Plc (“TrustBond” or “the bank”) reflects Global Credit Rating Company Limited’s (“GCR”) evaluation of its servicing capacity (specifically focusing on management and staff adequacy and skill, financial position, arrears management and debtor administration expertise, as well as system and control adequacy).

The bank is considered adequately staffed relative to its current scale of operations, with the management team possessing a strong profile in terms of professional qualifications and experience. Management stability is perceptible from the over a decade’s combined average tenure of the team in the company.

TrustBond’s internal capital generation has remained weak despite maintaining steady asset growth in the five years to FY17, underpinning the bank’s dwindling capitalisation metrics, with the capital/ totals assets ratio declining to a five year low of 41.6% at FY17, further contracting to 38.6% at 3Q FY18. Notwithstanding, the bank’s total shareholders’ funds of N5.6bn at FY17, translating to a risk capital adequacy ratio of 26.1% at FY17, comfortably meets the statutorily minimum capital required.

Trustbond’s performance at the NPAT level ended relatively flat at N102.1m in FY17 (FY16: N101.4m). While the bank registered a 28.7% growth in interest income to N1.4bn (catalysed by risk assets growth), a less pronounced 24.5% rise was recorded in interest expenses, thus accelerating net interest income growth to 30.8%. However, other income dipped by 50.7% to N150.8m on account of decline in fees and commission income, coupled with a N48.3m loss arising from sale of some trading properties, consequently moderating growth at the total operating income level to 6.8%.

Pressure on TrustBond’s asset quality deepened in the 18-month period to 30 September 2018 (this was attributed to the tough economic condition in the country by management). Gross non-performing loans (“NPL”) rose significantly 44.3% to N2.5bn at FY17, translating to NPL ratio of 27.7% (FY16: 25.6%), further escalating to 28.3% at 3Q FY18. While the bank witnessed an increase in write-offs in the two years to FY16, this trend was reversed in FY17, with total write-offs declining to the FY14 level of N2m. Cumulative write-offs in the five year period to FY17 totalled N119m. However, historical pattern in the five year review period indicates low recovery prospects for the write-offs, with nil recoveries recorded for FY17.

TrustBond’s operations are currently supported by the ‘Flexcube’ banking application, with the mortgage banking and servicing functions linked online, in real time.

A sustained improvement in profitability and servicing experience would be positively considered. A negative rating action may follow a significant decline in financial performance, as well as evidence of weakness in the bank’s servicing capacity.

*Note that a servicer quality rating is classified as a non-credit rating (refer to published rating scales and definitions).

NATIONAL SCALE RATINGS HISTORY
Initial rating (August 2016)
Primary Servicer: SQ3+(NG)
Outlook: Stable

Last rating (October 2017)
Primary Servicer: SQ3+(NG)
Outlook: Stable

ANALYTICAL CONTACTS
Primary Analyst
Julius Adekeye
+23 41 904-9462-3
adekeye@globalratings.net

Committee Chairperson
Dave King
king@globalratings.net

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Global Structure Finance Servicer Rating Criteria, updated February 2017
Glossary of Terms/ Ratios (February 2016)

RATING LIMITATIONS AND DISCLAIMERS

ALL GCR’S CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.COM.NG/UNDERSTANDING-RATINGS. IN ADDITION, GCR’S RATING SCALES AND DEFINITIONS ARE ALSO AVAILABLE FOR DOWNLOAD AT THE FOLLOWING LINK: HTTP://GLOBALRATINGS.COM.NG/RATINGS-INFO/RATING-SCALES-DEFINITIONS. GCR’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, PUBLICATION TERMS AND CONDITIONS AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE AT HTTP://GLOBALRATINGS.COM.NG.

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 12 months, or as indicated by the applicable rating document.

The rating above was solicited by, or on behalf of, TrustBond Mortgage Bank Plc, and therefore, GCR has been compensated for the provision of the rating.

TrustBond Mortgage Bank Plc 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 rating above was 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 rating included the audited annual financial statements of TrustBond Mortgage Bank Plc for five years, up to 31 December 2017, unaudited management accounts for nine month period, up to September 2018, as well as detailed information related to the bank’s operations.

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ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK:HTTP://GCRRATINGS.COM. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT WWW.GCRRATINGS.COM/RATING_INFORMATION. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR's CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THIS SITE.

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