Lagos Nigeria, 6 September 2018–Global Credit Ratings has affirmed the national scale ratings assigned to WSTC Financial Services Limited of BBB-(NG) and A3(NG) in the long term and short term respectively; with the outlook accorded as Stable. These ratings are valid until July 2019.
SUMMARY RATING RATIONALE
Global Credit Ratings has accorded the above credit ratings to WSTC Financial Services Limited (“WSTC” or “the company”) based on the following key criteria:
WSTC displayed improved financial performance metrics and good quality of assets during FY17. Also, cognisance is taken of the company’s ability to leverage the acceptability and popularity of its brand in the financial services industry, underpinned by its relatively long track record of over two and half decades.
The company maintained a strong capitalisation position for its operational scale throughout the review period. Shareholders’ funds grew 10.5% to N1.8bn at FY17, which translated to a capital adequacy ratio of 102.9% against the required minimum of 12.5% for the subsector and this remained strong at 78.0% as at May 2018.
Asset quality is considered sound as WSTC sustained nil non-performing loans (“NPLs”) for the second consecutive period in FY17.
Liquidity risk is considered minimal, given the balance sheet structure which comprised 69.1% in cash and liquid assets. While, cognisance is taken of the liquidity gap of N2.6bn (FY16: N2.1bn) in the less than one month maturity bucket of asset and liabilities (based on contractual maturity matching), behaviourally, most of the borrowings are usually rolled over at maturity.
Key performance metrics improved in FY17, as pre-tax profit closed the year at N275.3m, which represented 6.4% increase from the previous year, and well ahead of the budgeted N107.9m. While net interest income grew 49.9% in FY17, non-interest income declined by 39.2% due to moderation in FX gains (from N222.9m in FY16 to N107.1m in FY17). Impairment charge amounted to N1.3m (FY16: nil) during the period, but performance was further supported by a 12.2% reduction in operating expense, which saw the cost to income ratio to a lower 56.2% (FY16: 61.0%). Consequently, return on average equity and assets (“ROaE” and “ROaA”) improved to 14.2% and 4.6% in FY17, from 13.7% and 4.5% respectively in FY16.
Performance at 1H FY18 reflects an improvement in pre-tax profit when compared to the previous year and considered in line with budget for the period. Management remained optimistic about achieving the set budget for the full year.
An upward review of the rating may follow sustained improvement in profitability, and liquidity. Also, the company’s ability to maintain asset quality metrics at sound level may be positively considered. However, a significant decline in asset quality and /or liquidity position, due to expansion risk asset may result in a downward review of the rating.
NATIONAL SCALE RATINGS HISTORY
Initial rating (June 2011)
Long term: BBB-(NG); Short term: A3(NG)
Outlook: Stable
Last rating (August 2017)
Long term: BBB-(NG); Short term: A3(NG)
Outlook: Stable
ANALYTICAL CONTACTS
Primary Analyst
Funmilayo Abdulrahman
Senior Credit Analyst
funmilayo@globalratings.net
+234 1 462 2545, 904 9462-3
Committee Chairperson
Dave King
king@globalratings.net
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Criteria for Rating Banks and Other Financial Institutions, updated March 2017
Criteria for Rating Finance and Leasing Companies, updated March 2017
WSTC rating reports (2011-17)
Glossary of Terms/Ratios (February 2016)
RATING LIMITATIONS AND DISCLAIMERS
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://GLOBALRATINGS.COM.NG/UNDERSTANDING-RATINGS. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT HTTP://GLOBALRATINGS.COM.NG/RATINGS-INFO/RATINGS-SCALES-DEFINITIONS. 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 AT www.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 a maximum of 12 months, or earlier as indicated by the applicable credit rating document.
The ratings were solicited by, or on behalf of, WSTC Financial Services Limited, and therefore, GCR has been compensated for the provision of the ratings.
WSTC Financial Services 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 WSTC Financial Services Limited with no contestation of/changes to the ratings.
The information received from WSTC Financial Services Limited and other reliable third parties to accord the credit ratings included the latest audited annual financial statements at 31 December 2017 (plus four years of comparative numbers), latest internal and/or external auditor’s report to management, full year detailed budget for 2018, and most recent management accounts to 30 June 2018. In addition, information specific to the rated entity and/or industry was also received.