Announcements Financial Institutions Rating Alerts

GCR Assigns ProvidusBank Plc An Initial National Scale Rating of BB(NG); Outlook Stable

Lagos Nigeria, 29 June 2020 – Global Credit Ratings has assigned to ProvidusBank an initial national scale credit ratings of BB(NG) and B(NG) in the long term and short term respectively; with the outlook accorded as Stable. The ratings are valid until May 2021.

RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit ratings to ProvidusBank Plc (“ProvidusBank” or “the bank”) based on the following key criteria:

ProvidusBank is a relatively new commercial bank, licensed with a regional authorisation (having previously operated as a mortgage bank in Nigeria). The bank is presently focused on carving a niche within retail banking segment.

ProvidusBank’s capitalisation appears strong relative to its current risk level, reflecting a risk-weighted capital adequacy ratio of 15.7% at FY19, considered a good buffer above the 10% regulatory minimum requirement for its license category. The bank registered a 62.6% increase in shareholders’ funds to N12.4bn at FY19 via a combination of capital injection and retained earnings in FY19. Notwithstanding this, management has indicated the likelihood of the bank undertaking further capital raising initiatives in the current year to further strengthen capitalisation and enhance operation.

Despite the clean-up of the loan book, through the sale of non-performing loans (“NPL”), totalling N1.8bn, during FY19, gross impaired loans escalated by 15% to N1.8bn at FY19, albeit translated to a lower gross NPL ratio of 4.4% (FY18: 9.1%) due to aggressive loan growth. Furthermore, the bank’s coverage ratio (total provision coverage of NPLs) of 15.4% at FY19 is considered low and concerning.

ProvidusBank’s liquidity position is weak, this is evidenced by the bank’s statutory liquidity ratio falling short of the minimum requirement at some point during FY19 (recording lowest ratio of 23.7% in September 2019, albeit normalising at year end at 42%). The matching of the bank’s asset and liability maturities at the balance sheet date shows a negative cumulative liquidity gap across all maturity bands. The contractual liquidity gap in the ‘less than three months’ maturity bucket stood at N34.7bn (2.8 times of capital). However, the bank is in the process of issuing commercial papers to cushion its liquidity challenges.

The bank’s performance in FY19 reflects a significant improvement and a complete turnaround from historical trend, as the bank was profitable for the first time since its conversion to a commercial bank. Performance was supported by notable growth achieved across both interest and non-interest income, which saw total operating income peak at N6.3bn during the year, from less than N1bn previously. Notwithstanding the rise in operating expenses during the year, the cost ratio moderated to 85.4% (still exceeding the industry average) due to the outpacing revenue growth. Specifically, ProvidusBank recorded a pre-tax profit of N673.1m for FY19, compared to a loss of N3.6bn in the prior year. Thus, return on average equity and assets improved to 5.7% and 0.6% from negatives in FY18 respectively.

Upward rating movement could result from a significant enhancement of market position, in addition to improvement in key performance metrics (especially profitability, liquidity, and asset quality). Conversely, a rating downgrade could follow a weakening and/or sustained pressure on earnings, asset quality, and liquidity metrics.

NATIONAL SCALE RATINGS HISTORY

Initial/last rating (June 2020)

Long term rating: BB(NG)

Short term rating: B(NG)

Rating outlook: Stable

ANALYTICAL CONTACTS

Primary Analyst

Adeyinka Olowofela

Senior Analyst

yinka@gcrratings.com

+2341 904-9462

Committee Chairperson

Dave King

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Global Criteria for Rating Banks and Other Financial Institutions, updated March 2017

Glossary of Terms/Ratios (February 2016)

RATING LIMITATIONS AND DISCLAIMERS

ALL GCR’S 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, GCR’S RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLI WEB SITE AT: HTTP://GLOBALRATINGS.COM.NG/RATINGS-INFO/RATING-SCALES-DEFINITIONS. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE ON 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, ProvidusBank Plc, and therefore, GCR has been compensated for the provision of the ratings.

ProvidusBank Plc 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 rating above was disclosed and contested by ProvidusBank Plc, but the rating was sustained

The information received from ProvidusBank Plc and other reliable third parties to accord the credit rating included the latest audited annual financial statements as at 31 December 2019 (plus two years of audited comparative numbers), latest internal and/or external audit report to management, full year detailed budgeted financial statements for 2020, most recent year-to-date management accounts to 31 March 2020 reserving methodologies and capital management policies. In addition, information specific to the rated entity and/or industry was also received.

image_pdfPDF View


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.

CREDIT RATINGS ISSUED AND RESEARCH PUBLICATIONS PUBLISHED BY GCR, ARE GCR’S OPINIONS, AS AT THE DATE OF ISSUE OR PUBLICATION THEREOF, OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. GCR DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL AND/OR FINANCIAL OBLIGATIONS AS THEY BECOME DUE. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: FRAUD, MARKET LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND GCR’S OPINIONS INCLUDED IN GCR’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND GCR’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND GCR’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL OR HOLD PARTICULAR SECURITIES. NEITHER GCR’S CREDIT RATINGS, NOR ITS PUBLICATIONS, COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. GCR ISSUES ITS CREDIT RATINGS AND PUBLISHES GCR’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING OR SALE.

Copyright © 2021 GCR INFORMATION PUBLISHED BY GCR MAY NOT BE COPIED OR OTHERWISE REPRODUCED OR DISCLOSED, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT GCR’S PRIOR WRITTEN CONSENT. Credit ratings are solicited by, or on behalf of, the issuer of the instrument in respect of which the rating is issued, and GCR is compensated for the provision of these ratings. Information sources used to prepare the ratings are set out in each credit rating report and/or rating notification and include the following: parties involved in the ratings and public information. All information used to prepare the ratings is obtained by GCR from sources reasonably believed by it to be accurate and reliable. Although GCR will at all times use its best efforts and practices to ensure that the information it relies on is accurate at the time, GCR does not provide any warranty in respect of, nor is it otherwise responsible for, the accurateness of such information.GCR adopts all reasonable measures to ensure that the information it uses in assigning a credit rating is of sufficient quality and that such information is obtained from sources that GCR, acting reasonably, considers to be reliable, including, when appropriate, independent third-party sources. However, GCR cannot in every instance independently verify or validate information received in the rating process. Under no circumstances shall GCR have any liability to any person or entity for (a) any loss or damage suffered by such person or entity caused by, resulting from, or relating to, any error made by GCR, whether negligently (including gross negligence) or otherwise, or other circumstance or contingency outside the control of GCR or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits) suffered by such person or entity, as a result of the use of or inability to use any such information. The ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained in each credit rating report and/or rating notification are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. Each user of the information contained in each credit rating report and/or rating notification must make its own study and evaluation of each security it may consider purchasing, holding or selling. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY GCR IN ANY FORM OR MANNER WHATSOEVER.