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GCR Affirms Coronation Merchant Bank Limited’s National Scale Long and Short-term Issuer Ratings of A-(NG)/A2(NG); Outlook Stable

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coronation merchant app

GCR Ratings (“GCR”) has affirmed Coronation Merchant Bank Limited’s national scale long-term and short-term ratings of A-(NG) and A2(NG) respectively, with a Stable Outlook.

Rated Entity Rating class Rating scale Rating Outlook
Coronation Merchant Bank Limited Long Term issuer National A-(NG) Stable
Short Term issuer National A2(NG)

Rating rationale

The ratings of Coronation Merchant Bank Limited (“Coronation MB” or “the bank”) reflect its adequate funding and liquidity position, and sound asset quality metrics, as evidenced by the nil non-performing loans (“NPL”) since inception to date. However, these strengths are partly offset by the bank’s modest competitive position, significant loan book concentration and heavy reliance on wholesale funding from financial institutions.

Coronation MB is a strong player within the Nigerian merchant banking subsector based on its product/service delivery, loan portfolio and deposit mobilisation capacity relative to peers. Leveraging its long track record (having previously operated as a discount house for over two decades) and partnerships, the bank ensures consistent enhancement of its operational scale, particularly within the trade finance space. Reflective of its relatively small customer base and the trends across the merchant banking subsector, elevated concentration risk is perceived, with the twenty largest obligors and depositors constituting 85.0% and 75.4% of gross loans and customer deposits respectively at FY20. Also, the bank evidenced moderate market share within the Nigerian banking industry in terms of total assets, customer deposits, and loan portfolio, which are estimated at 0.8%, 0.7% and 0.7% respectively at FY20. Management & Governance is a neutral ratings factor.

Capitalisation is assessed at an intermediate level. The GCR computed capital ratio registered at 17.6% at FY20 (FY19: 19.8%) and expected to moderate to 16%-17% range over the next 12-18 month in view of the outpacing growth in risk weighted assets vis-à-vis internal capital generation. Earnings quality is considered ratings negative, reflected by revenue stability risk characterised by high source concentration and a material exposure to market sensitive income, which constituted a sizeable 42.5% of total operating revenue in FY20 (FY19: 41.3%).

Risk position is sound and a key ratings strength, underpinned by the bank’s nil NPL since inception to date and moderate credit losses of 0.2% at FY20, which broadly compared favourably with the industry average of about 3%. Initial assessments of the potential impact of the COVID-19 pandemic indicated that the bank will not be immune to the sector-wide challenges, which include asset quality concerns and slower loan repayments. However, this impact has thus far remained minimal, with the bank making no recourse to regulatory forbearance during the period. That said, we expect NPL and credit losses to remain at similar strong range over the rating horizon on the back of sustenance of stringent underwriting criteria and the macroeconomic environment recoveries. Conversely, the loan book is considered highly concentrated, with the top twenty obligors accounting for 85% of the loan book at FY20. While this is a rating constraining factor and typical of merchant banks in Nigeria, management expects this concentration to moderate somewhat over the short to medium term on account of the recent sectoral coverage expansion. GCR is also cognisant of the bank’s significant exposures to market risk considering the substantial market sensitive income realised in FY20.

Coronation MB’s funding base is considered adequate, predominantly bolstered by the debut N25bn subordinated unsecured bonds issued during 2020, as well as its improved deposit mobilisation capacity. As a result, the GCR long term funding ratio and stable funding ratio was robust at 80.8% and 73.1% respectively at FY20. While cognisance is taken of the sizeable (41.3%) growth in customer deposits in FY20, concentration risk is evident, with the top twenty depositors accounting for 75.4% of the deposit book, the bulk of which were from financial institutions. Positively, liquidity position is solid, with the GCR liquid asset covering wholesale funding and customer deposits by 3.9x and 53.1% respectively at FY20.

Outlook statement

The stable outlook reflects GCR’s expectation that Coronation MB’s asset quality metrics would remain sound despite the strains in the operating environment, albeit with the loan portfolio concentration by obligor remaining high. GCR calculated capital ratio is anticipated to moderate to 16-17% range over the next 12-18 month given our expectation that the outpacing growth in risk weighted assets vis-à-vis internal capital generation will continue to weigh down capitalisation metrics. However, GCR will positively consider a material improvement in core earnings over the rating horizon. While we anticipate liquidity to remain sound, diversification of the deposit book with a better mix of non-financial institution clients would be positively considered.

Rating triggers

The ratings could be upgraded if Coronation MB materially improves its core earnings and achieves a core capital ratio above 20% on a sustainable basis, while also maintaining sound asset quality metrics. In addition, GCR would positively consider a well-diversified loan portfolio and funding base. Conversely, a downward rating movement could be triggered by a material deterioration in GCR computed capital ratio to below 15% range, asset quality pressures and increase reliance on wholesale funding from financial institutions.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Banking Sector

Jaiz Bank Boosts Chairman’s Income to N24m Amidst Strategic Expansion

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Jaiz Bank

Jaiz Bank has announced a 20% increase in its chairman’s annual income to N24 million.

This decision was unveiled in a recent statement filed with the Nigeria Exchange Limited, highlighting the bank’s commitment to rewarding leadership amidst its expansion plans.

The bank, renowned for its pioneering role in non-interest banking in Nigeria since 2012, also approved a remuneration package of N20 million for each non-executive director.

The announcement was made by the bank’s secretary, Mohammed Shehu, highlighting the importance of competitive compensation for board members who provide crucial oversight and strategic guidance.

Shareholders at the Annual General Meeting (AGM) expressed confidence in the board’s leadership by approving the resolution on directors’ fees.

This move aligns with Jaiz Bank’s ongoing efforts to enhance its capital base to N70 billion by the end of 2024.

The bank also announced a dividend of 4 kobo per share, which will be distributed to shareholders on July 16, 2024.

This dividend declaration was welcomed as a testament to the bank’s operational success in a challenging economic climate.

Also, the AGM saw the re-election of Muhammadu Indimi and Muhammad Abdulmutallab as non-executive directors, reaffirming shareholder trust in their leadership capabilities.

Jaiz Bank’s financial performance has been impressive, with a 67% increase in profit before tax, reaching N11.1 billion in 2023.

Gross earnings also rose by 42% to N47.2 billion from the previous year, showcasing the bank’s successful growth strategy.

As Jaiz Bank continues to expand its services, the enhanced remuneration package signals a commitment to maintaining strong governance and leadership, paving the way for future achievements in ethical banking.

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Banking Sector

Nigeria Plans 50% Windfall Tax on Banks’ Currency Profits

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Central Bank of Nigeria (CBN)

Nigerian President Bola Tinubu has announced a one-time 50% tax on windfall profits that banks reaped from currency gains following last year’s naira devaluation.

This decision was part of the government’s strategy to navigate the ongoing cost-of-living crisis.

The naira, which has depreciated by about 70% against the dollar since foreign exchange rules were relaxed in June 2023, allowed banks holding dollar assets to significantly boost their income.

However, the Central Bank of Nigeria had advised lenders to retain these profits as a buffer against potential future losses.

The proposed tax will apply to the 2023 financial year, with non-compliance resulting in hefty fines.

The move has already impacted the NGX Banking Index, which fell by 1.3% as of midday trading in Lagos. Notable declines were seen in FBN Holdings Plc and Zenith Bank Plc, dropping 3.2% and 2.5% respectively.

This initiative mirrors similar actions in Europe, where countries like Italy and Hungary have imposed taxes on banks to address what they view as excessive profits during periods of high inflation and interest rates.

European banks have criticized these measures, warning of potential impacts on economic growth due to constrained lending capabilities.

President Tinubu’s administration believes this tax will help manage Nigeria’s fiscal challenges while addressing social needs.

Lawmakers are expected to support the measure, alongside a proposal to increase government spending by 6.2 trillion naira ($3.8 billion).

While banks have benefited from currency revaluations, many customers, particularly manufacturers with dollar-denominated loans, faced significant losses as they struggled with the weaker naira.

The new tax policy highlights the government’s broader efforts to stabilize the economy and attract foreign investment, aiming to ensure a more equitable distribution of financial gains.

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Banking Sector

Unity Bank Customers Win Over N4 Million in Cashtoken Rewards Promo

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Unity Bank customers have claimed over N4 million in cash rewards in its ongoing loyalty programme recently rolled out with Cashtoken, a Cash Reward-as-a-Service company.

The winners included no fewer than 40 customers who adopted and transacted on the Bank’s digital banking platforms, including the UniFi mobile banking application, the *7799# USSD platform or activated their Unity Bank Verve Card to transact on e-payment terminals across Nigeria.

Beginning from onboarding in our customer lifecycle journey, the Unity Bank Cashtoken Partnership commenced as a loyalty and reward scheme to reinforce the benefits of e-banking platforms. To begin, Customer transactions earn cash tokens, which are then redeemed to qualify for the monthly Cashtoken Rewards draw. Consequently, winners emerge from the draws to claim the cash prizes.

Recall that the retail lender announced the ongoing Cashtoken Rewards loyalty programme in December 2023 in partnership with Cashtoken Rewards Africa to empower customers and improve customer satisfaction. The partnership with Cashtoken Rewards also provided an opportunity for the Bank to migrate customers—old and new—to a platform that will continually create exciting rewards and appreciation for loyalty.

Eghomware Iyamu, Unity Bank’s Head of E-Business, commenting on the success of the Cashtoken Rewards loyalty program, stated: “We are excited to see our customers win over N4 million in cash rewards through our partnership with Cashtoken. This initiative demonstrates our commitment to recognizing and rewarding the loyalty of our customers”.

“By leveraging our digital banking platforms, including the Unifi mobile banking application and the *7799# USSD platform, we are not only enhancing customer experience but also providing life-changing opportunities. The Cashtoken Rewards program is a testament to our dedication to improving customer satisfaction and creating meaningful rewards along our customer lifecycle journey. We look forward to seeing more of our customers benefit from this exciting program as we continue to innovate and deliver exceptional value to them.”

Unity Bank has robust electronic banking products which include mobile and digital banking channels, including ATM, PoS, or any digital payment channels which support retail product transactions across the country. New-to-Bank customers are invited to open a Unity Bank account, onboard onto the digital platforms and begin transacting on the various platforms to earn cash token rewards and cash prizes while existing customers are encouraged to onboard and transact to win even more rewards and cash prizes.

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