Lagos Nigeria, 14 August 2019–Global Credit Ratings has upgraded Rand Merchant Bank Nigeria Limited national scale long term rating to A+(NG) and the short term was affirmed at A1(NG); with the outlook accorded as Stable. The ratings are valid until July 2020.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit ratings to Rand Merchant Bank Nigeria Limited (“RMBN” or “the bank”) based on the following key criteria:
The ratings accorded to RMBN takes into consideration its improved competitive profile over the review period, in terms of profitability and market share. Also, note is taken of the RMBN’s risk-controlled growth in lending and highly liquid balance sheet. Parental support from its South African holding group, FirstRand Group has also been factored into the rating.
Cognisance has been taken of RMBN’s strong asset quality with nil impaired loan recorded from inception to date.
Capitalisation is considered adequate for its current level of risk. Supported by sound internal capital generation, shareholders’ funds grew 30.3 % to N38bn at FY18. Consequently, total regulatory risk weighted capital adequacy ratio rose to 48.9% at FY18, from 42.6% at FY17.
The bank maintained a highly liquid balance sheet during FY18, closing with a liquidity buffer of N19.3bn in the ‘less than one month’ maturity band (of assets and liabilities maturity matching). Also, liquid assets to short-term funding stood at 186.3%, while regulatory liquidity ratio closed the year at 104%.
The bank reported a strong profitability growth during FY18, having net profit after tax improve to N9.9bn in FY18 (FY17: N7.1bn), on the back of a strong revenue growth (supported by gains on foreign currency transactions). Although an increase in staff cost and administrative expenses resulted to a corresponding increase in operating expenses during the year, the outpace growth in the total operating income saw the cost ratio end relatively flat at 39.3%. Accordingly, return on average equity increased to 29.4% (FY17: 28.2%), while return on average assets reported a slight decline to 6.2% from 7.4% in FY17.
An upward movement in the ratings may follow a sustained improvement in profitability and earnings, while maintaining sound asset quality metrics. The rating may be adjusted downward following a decline in asset quality or profitability which could impact on capital, or a change in the bank’s support structure.
NATIONAL SCALE RATINGS HISTORY
Initial rating (March 2016)
Long term: A(NG)
Short term: A1(NG)
Last rating (August 2018)
Long term: A(NG)
Short term: A1(NG)
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APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Criteria for rating Banks and Other Financial Institutions, updated March 2017
Glossary of Terms/Ratios, February 2016
RMBNL rating reports, (2016-18)
RATING LIMITATIONS AND DISCLAIMERS
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, Rand Merchant Bank Nigeria Limited, and therefore, GCR has been compensated for the provision of the ratings.
Rand Merchant Bank 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 and contested by Rand Merchant Bank Nigeria Limited and were reconsidered, and accorded following the provision of year to date management account.
The information received from Rand Merchant Bank Nigeria Limited and other reliable third parties to accord the credit rating included the audited accounts as at 31 December 2018 (plus four years of comparative audited financial statements), latest internal and external audit report to management, and full year to date budgets and management account to 30 April 2019. In addition, information specific to the rated entity and/or industry was also received.