Lagos, 23 June 2021 – GCR Ratings (“GCR”) has assigned Sterling Asset Management and Trustees Limited 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|
|Sterling Asset Management and Trustees Limited||Long Term issuer||National||BBB(NG)||Stable|
|Short Term issuer||National||A3(NG)|
GCR has withdrawn the *(mq) rating as a business decision, without review. MQ ratings are not credit ratings, therefore they do not measure the relative ability of an entity to meet its financial obligations. Conversely. GCR’s issuer credit ratings are forward-looking opinions on the relative creditworthiness of a specific financial obligation, or a class of financial obligations issued by an entity.
The national scale issuer ratings assigned to Sterling Asset Management and Trustees Limited (“SAMTL” or “the company”) reflect its strong capitalisation and moderate liquidity profile, which are partly offset by the company’s limited competitive position.
SAMTL is a small sized portfolio manager within the Nigerian asset management space, with the total Fund Under Management (“FUM”) of N20.2bn and an estimated market share of 1% as at FY20. It has a long track record of over three decades, with an established strong franchise and proven track record of earnings stability. The company has in its portfolio sinking funds, managed on behalf of bondholders, which accounted for 38% of total FUM at FY20, and retail products, targeted at various classes of individuals (managed either on a discretionary or nondiscretionary basis, depending on client mandates).
Capitalisation is a rating positive. We consider SAMTL to be adequately capitalized, with the GCR leverage ratio at a strong 20.6% at FY20 (FY19: 23.1%). Over the years, growth in capital has been supported by internal earnings accretion. We expect this trend to be sustained going forward based on the historical pattern, as well as the management’s representation affirming a conservative approach to capital.
Though we view SAMTL’s risk position to be contained, it remains a ratings constraint. Of concern is the concentration of the company’s placement counterparty, with all short-term placements concentrated in one financial institution as at FY20. Also, the fact that investment in property more than doubled at FY20 elevates SAMTL’s risk profile, considering the risks associated with real estate investments in Nigeria. In terms of credit exposure, we believe this is well managed, as the non-performing loan (“NPL”) ratio has historically remained below 1%, albeit it spiked to 4.1% in FY20 following the significant (85%) contraction of the loan book during the year, which management attributed to the discontinuation of lending to the real estate sector (which had prior to 2020 constituted the bulk of the loan book). The reported sharp decline in the loan book resulted in significant concentration by obligor, with the 10 largest exposures constituting about 89.3% of the portfolio at FY20. We expect a more diversified loan book over the short to medium term as the company re-strategies on its lending focus.
Funding and liquidity position is assessed at an intermediate level. SAMTL is solely funded through customer deposit (FUM), which are interest bearing funds, with tenors mostly (60%) less than 12 months. Liquidity is viewed to be strong and broadly comparable with peers, with cash and liquid asset accounting for about 71% of total FUM at FY20 (FY19: 74%). However, the contractual matching of assets and liabilities reflects a liquidity gap of N2.4bn (112.5% of capital) in the ‘less than three-month’ band. Nonetheless, inherent liquidity risk is partially mitigated by the fact a sizeable portion of deposits are usually rolled over at maturity, although at the discretion of the depositors given their pricing sensitivities. Looking ahead, we expect this sound liquidity position to be sustained over the next 12-18 months on the back of the sizeable quantum of liquid assets.
The Stable Outlook indicates GCR’s expectations that SAMTL will continue to maintain a conservative balance sheet, which should support liquidity over the next 12-18 months. We believe the current macroeconomic dynamics, characterised by low interest environment and limited viable alternative investment options, would continue to aid FUM growth and earnings performance.
A significant and sustained improvement in asset attraction and retention capacity, as well as diversification of the investment portfolio could lead to a positive rating action. Conversely, a downward movement in the rating could result from a material reduction in FUM/key clients and weakened financial profile.
|Primary analyst||Adeyinka Olowofela||Senior Analyst, Financial Institutions|
|Lagos, NG||Yinka@GCRratings.com||+234 1 904 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 Scale, Symbols & Definitions, May 2019|
|GCR Country Risk Scores, February 2021|
|GCR Financial Institutions Sector Risk Score, February 2021|
Sterling Asset Management and Trustees Limited
|Rating class||Review||Rating scale||Rating class||Outlook||Date|
|Long Term Issuer||Initial/last||National||BBB(NG)||Stable||June 2021|
|Short Term Issuer||A3(NG)|
Risk Score Summary
|Rating Components & Factors||Risk scores|
|Country risk score||3.75|
|Sector risk score||2.00|
|Management and governance||0.00|
|Capital and leverage||3.50|
|Earnings vs. Risk||-0.25|
|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 Rating||An opinion regarding the creditworthiness of an entity, a security or financial instrument, or an issuer of securities or financial instruments, using an established and defined ranking system of rating categories.|
|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 Ratings
GCR affirms that a.) no part of the ratings were 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 rating has been disclosed to Sterling Asset Management and Trustees 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 rating.
Sterling Asset Management and Trustees 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 Sterling Asset Management and Trustees Limited and other reliable third parties to accord the credit ratings included:
- Audited financial results as at 31 December 2020
- Four years of comparative audited numbers
- Other related documents.