Lagos, 05 August 2021 – GCR Ratings (“GCR”) has assigned Greenwich Merchant Bank Limited’s national scale long and short-term issuer ratings of BBB-(NG) and A3(NG) respectively, with a Stable Outlook.
|Rated Entity/Issue||Rating class||Rating scale||Rating||Outlook/Watch|
|Greenwich Merchant Bank Limited||Long Term Issuer||National||BBB-(NG)||Stable Outlook|
|Short Term Issuer||National||A3(NG)|
The ratings assigned to Greenwich Merchant Bank Limited (“Greenwich MB” or “the bank”) balance its nascent banking operations of less than a year, limited operational scale, strong capitalisation, robust liquidity and sound risk position.
Greenwich MB is a new entrant in the Nigerian merchant banking space, evolving from an investment banking led franchise (under its former name Greenwich Trust Limited) with over 27 years track record. Leveraging existing relationships, strategic alliances, and somewhat diverse product offerings by its subsidiaries (asset manager and stockbroking) and affiliated entities, the bank envisages accelerated operational expansion over the short to medium term. However, Greenwich MB’s competitive position is currently constrained by its limited operational scale and very small customer base, as evidenced by the elevated concentration risk by both the loan portfolio and deposit book. Management & Governance is a neutral rating factor as it is in line with best practice.
Capitalisation is considered strong, with GCR computed capital ratio registered at a robust 151% as of 30 June 2021 (FY20: 185%), reflective of its nascent banking operations and moderate loan exposures to date. Over the next 12-18 months, we expect Greenwich MB’s capitalisation metrics to be weighed down (albeit to remain at a sound level) by its operational expansion drive and accelerated loan book growth, as well as the consequential increase in risk weighted assets (“RWA”). Nonetheless, we expect the core capital ratio to remain within a strong range of above 35% over the rating horizon. Also, increased value proposition and lending activities are expected to further support internal capital generation, albeit at a relatively slower pace vis-à-vis the anticipated RWA growth.
Risk position is sound and well contained, evidenced by the nil non-performing loan (“NPL”) as of 30 June 2021. This position largely rides on the back of Greenwich MB’s relatively short track record, with the most part of the loan book yet to reach maturity. Reflective of its small customer base, concentration by obligor is high, with just four obligors making up the loan portfolio as of 30 June 2021. We anticipate a more diversified loan book over the short to medium term as the bank continues to expand its lending activities. Conversely, foreign currency (“FCY”) risk is considered minimal, as FCY loan portfolio is still evolving following the recent regulatory FX licence approval. That said, the bank expects to mitigate FX risk through cautious FX exposure to only obligors with FX receivables.
Greenwich MB’s funding and liquidity is robust and considered appropriate for its current operational scale. As of 30 June 2021, the bank was predominantly funded by equity and customer deposits, constituting 84.6% and 15.4% of the funding base respectively. Although the deposit book remained moderate at N4.9bn as of 30 June 2021, management expects to improve deposit mobilisation through leveraging digital platform, strategic alliances with fintechs and increase value proposition to customers. Expectedly, concentration by depositors is considered high, with the twenty largest depositors constituting 96.6% of the deposit book as of 30 June 2021.
The stable outlook reflects GCR’s expectation that Greenwich MB would successfully implement its outlined strategic initiatives and expand operational scale over the short to medium term. We believe capitalisation metrics would be sustained at strong levels, albeit the outpacing growth in RWA vis-à-vis internal capital generation could weigh down capitalisation assessment somewhat. Asset quality metrics are expected to remain sound over the rating horizon on the back of the bank’s cautious lending approach and stringent credit approval process. Liquidity is expected to remain at robust levels, despite the loan book growth.
The ratings being upgraded is unlikely over the ratings horizon. However, if Greenwich MB substantially scales up its operations and banking franchise to levels approaching merchant banking peers, while also maintaining very strong capitalisation, robust liquidity, and clean asset quality metrics on a sustainable basis we could improve the score in 18 to 24 months. Conversely, a downward rating movement could be triggered by a material deterioration in capitalisation, liquidity or asset quality metrics.
|Primary analyst||Yinka Adeoti||Financial Institutions Analyst|
|Lagos, NG||Adeoti@GCRratings.com||+2341 904 9462|
|Committee chair||Matthew Pirnie||Group Head of Ratings|
|Johannesburg, ZA||MatthewP@GCRratings.com||+27 11 784 1771|
Related criteria and research
|Criteria for the GCR Ratings Framework, May 2019|
|Criteria for Rating Financial Institutions, May 2019|
|GCR Ratings Scales, Symbols & Definitions, May 2019|
|GCR Country Risk Scores, February 2021|
|GCR Financial Institutions Sector Risk Score, February 2021|
Greenwich Merchant Bank Limited
|Rating class||Review||Rating scale||Rating||Outlook||Date|
|Long Term issuer||Initial/last||National||BBB-(NG)||Stable||August 2021|
|Short Term issuer||National||A3(NG)||August 2021|
Risk score summary
|Rating Components & Factors||Risk Scores|
|Country risk score||3.75|
|Sector risk score||3.50|
|Management and governance||0.00|
|Capital and Leverage||3.00|
|Funding and Liquidity||0.00|
|Balance Sheet||Also known as Statement of Financial Position. A statement of a company’s assets and liabilities provided for the benefit of shareholders and regulators. It gives a snapshot at a specific point in time of the assets the company holds and how they have been financed.|
|Capital||The sum of money that is invested to generate proceeds.|
|Cash||Funds that can be readily spent or used to meet current obligations.|
|Credit losses||New loan loss provisions divided by average customer loans.|
|Debt||An obligation to repay a sum of money. More specifically, it is funds passed from a creditor to a debtor in exchange for interest and a commitment to repay the principal in full on a specified date or over a specified period.|
|Diversification||Spreading risk by constructing a portfolio that contains different exposures whose returns are relatively uncorrelated. The term also refers to companies which move into markets or products that bear little relation to ones they already operate in.|
|Exposure||Exposure is the amount of risk the holder of an asset or security is faced with as a consequence of holding the security or asset. For a company, its exposure may relate to a particular product class or customer grouping. Exposure may also arise from an overreliance on one source of funding. In insurance, it refers to an individual or company’s vulnerability to various risks|
|Income||Money received, especially on a regular basis, for work or through investments.|
|Interest||Scheduled payments made to a creditor in return for the use of borrowed money. The size of the payments will be determined by the interest rate, the amount borrowed or principal and the duration of the loan.|
|Issuer||The party indebted or the person making repayments for its borrowings.|
|Leverage||With regard to corporate analysis, leverage (or gearing) refers to the extent to which a company is funded by debt.|
|Liquidity||The speed at which assets can be converted to cash. It can also refer to the ability of a company to service its debt obligations due to the presence of liquid assets such as cash and its equivalents. Market liquidity refers to the ease with which a security can be bought or sold quickly and in large volumes without substantially affecting the market price.|
|Long Term Rating||See GCR Rating Scales, Symbols and Definitions.|
|Margin||A term whose meaning depends on the context. In the widest sense, it means the difference between two values.|
|Market||An assessment of the property value, with the value being compared to similar properties in the area.|
|Maturity||The length of time between the issue of a bond or other security and the date on which it becomes payable in full.|
|Rating Outlook||See GCR Rating Scales, Symbols and Definitions.|
|Risk||The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.|
|Short Term Rating||See GCR Rating Scales, Symbols and Definitions.|
|Short Term||Current; ordinarily less than one year.|
SALIENT POINTS OF ACCORDED RATING
GCR affirms that a.) no part of the rating process was influenced by any other business activities of the credit rating agency; b.) the ratings were based solely on the merits of the rated entity, security or financial instrument being rated; and c.) such ratings were an independent evaluation of the risks and merits of the rated entity, security or financial instrument.
The credit ratings have been disclosed to Greenwich Merchant Bank Limited. The rating above was solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the ratings.
Greenwich Merchant Bank Limited participated in the rating process via video conference management meetings, and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.
The information received from Greenwich Merchant Bank Limited and other reliable third parties to accord the credit ratings included:
- The audited financial results to 31 December 2020
- Management account as of 30 June 2021
- Other related documents.