Banking Sector

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

Published

3 years ago

July 23, 2021

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
Coronation Merchant Bank Limited	Short Term issuer	National	A2_(NG)	Stable

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.

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Samed Olukoya

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

UBA, Access Holdings, and FBN Holdings Lead Nigerian Banks in Electronic Banking Revenue

Published

2 days ago

April 24, 2024

Samed Olukoya

United Bank for Africa (UBA) Plc, Access Holdings Plc, and FBN Holdings Plc have emerged as frontrunners in electronic banking revenue among the country’s top financial institutions.

Data revealed that these banks led the pack in income from electronic banking services throughout the 2023 fiscal year.

UBA reported the highest electronic banking income of N125.5 billion in 2023, up from N78.9 billion recorded in the previous year.

Similarly, Access Holdings grew electronic banking revenue from N59.6 billion in the previous year to N101.6 billion in the year under review.

FBN Holdings also experienced an increase in electronic banking revenue from N55 billion in 2022 to N66 billion.

The rise in electronic banking revenue underscores the pivotal role played by these banks in facilitating digital financial transactions across Nigeria.

As the nation embraces digitalization and transitions towards cashless transactions, these banks have capitalized on the growing demand for electronic banking services.

Tesleemah Lateef, a bank analyst at Cordros Securities Limited, attributed the increase in electronic banking income to the surge in online transactions driven by the cashless policy implemented in the first quarter of 2023.

The policy incentivized individuals and businesses to conduct more transactions through digital channels, resulting in a substantial uptick in electronic banking revenue.

Furthermore, the combined revenue from electronic banking among the top 10 Nigerian banks surged to N427 billion from N309 billion, reflecting the industry’s robust growth trajectory in digital financial services.

The impressive performance of UBA, Access Holdings, and FBN Holdings underscores their strategic focus on leveraging technology to enhance customer experience and drive financial inclusion.

By investing in digital payment infrastructure and promoting digital payments among their customers, these banks have cemented their position as industry leaders in the rapidly evolving landscape of electronic banking in Nigeria.

As the Central Bank of Nigeria continues to promote digital payments and reduce the country’s dependence on cash, banks are poised to further capitalize on the opportunities presented by the digital economy.

Banking Sector

FMBN Set for Commercialization to Improve Affordable Mortgage Financing

Published

4 days ago

April 22, 2024

Samed Olukoya

In a bid to bolster housing delivery efficiency and enhance affordable mortgage financing for Nigerians, the Federal Mortgage Bank of Nigeria (FMBN) is gearing up for commercialization.

This move comes as part of the Nigerian government’s efforts to address the housing deficit and ensure adequate shelter for its citizens.

The Managing Director of FMBN, Shehu Osidi, made this announcement during a courtesy visit by the Federal Housing Delivery Reforms Task Team at the bank’s headquarters in Abuja.

Led by Mr. Adedeji Adesemoye and Brig. Gen. Tunde Reis, the task team discussed strategies to revitalize the housing sector, with a focus on FMBN’s pivotal role in providing affordable mortgage financing.

Osidi explained the bank’s commitment to supporting the government’s agenda of reforming and improving the housing sector, which is vital for sustainable development and enhancing citizens’ quality of life.

He underscored FMBN’s significant journey in the history of mortgage and housing finance in Nigeria and expressed optimism about the forthcoming commercialization process.

The commercialization plan involves repositioning and recapitalization efforts, following extensive engagements with the Bureau of Public Enterprise (BPE).

Osidi stressed the importance of aligning the bank’s operations with its mandate of affordable mortgage financing, ensuring that it remains a reliable partner in the quest for accessible housing solutions.

As part of its strategic blueprint, FMBN has prioritized various initiatives to enhance service delivery and operational efficiency.

Of note is the ICT project aimed at upgrading core banking applications that is almost complete and promised to revolutionize customers’ experience.

Also, amendments to the FMBN and NFH Acts are underway in the National Assembly, addressing key areas to facilitate the bank’s transformation.

Despite challenges, including performance issues with estate development loans, FMBN is determined to overcome obstacles and achieve its objectives.

The commercialization plan aligns with broader efforts to deepen reforms and foster a remarkable turnaround in the housing sector.

By focusing on process automation, cost efficiency, credit quality enhancement, and strategic partnerships, FMBN aims to catalyze sustainable growth and address the nation’s housing needs effectively.

Chairman of the Federal Housing Reforms Task Team, Adedeji Adesomoye, reiterated the committee’s mandate to review the operations and governance structures of key housing institutions.

With ambitious targets set by the government, including the construction of 20,000 housing units in 2024 and 50,000 units in subsequent years, the commercialization of FMBN marks a pivotal step towards realizing Nigeria’s housing aspirations.

As the commercialization process unfolds, FMBN stands poised to play a central role in facilitating access to affordable mortgage financing, thereby contributing to the realization of homeownership dreams for millions of Nigerians.

Banking Sector

Adesola Adeduntan’s Early Departure Prompts First Bank Holdings to Scrap Capital Raise Plans

Published

6 days ago

April 20, 2024

Samed Olukoya

First Bank Holdings Plc has decided to scrap its plans for capital raise following the early departure of its Managing Director, Adesola Adeduntan.

The decision to cancel the extraordinary general meeting (EGM), which was planned to discuss the proposed N300 billion capital raise, comes amidst Adeduntan’s resignation from his role, eight months before the scheduled expiration of his tenure.

The bank formally announced the cancellation of the EGM in a filing seen by Investors King on Friday.

The meeting, which was initially scheduled to be held virtually on April 30, 2024, aimed to seek authorization from the company’s members for the capital raise and address other related matters.

Adeduntan’s resignation, announced on the same day as the cancellation of the EGM, comes as a result of the Central Bank of Nigeria’s tenure requirements affecting bank executives.

In his retirement letter addressed to the Chairman of First Bank, Adeduntan expressed gratitude for the support received during his stewardship and highlighted the strides made by the bank during his tenure.

He stated, “During this period, the bank and its subsidiaries have undergone significant changes and broken new grounds. We have repositioned the institution as an enviable financial giant in Africa.”

Adeduntan further mentioned his decision to pursue other interests, prompting his early retirement effective April 20, 2024.

The cancellation of the capital raise plans shows the impact of Adeduntan’s departure on the bank’s strategic initiatives.

It reflects a shift in priorities for First Bank Holdings as it navigates leadership changes and seeks to chart a new course for its future direction.