GCR Affirms Stanbic IBTC Bank Issuer Ratings of AAA

GCR Ratings (GCR) has affirmed Stanbic IBTC Bank Plc.’s national scale long and short-term issuer ratings of AAA (NG) and A1+ (NG) respectively. In a rating note, the firm said also affirmed the bank’s N30 billion Series 1 Senior Unsecured Notes national scale issue rating of AAA (NG).

The rating outlook is accorded stable ass Stanbic IBTC Bank is considered a core operating entity of the Group. As such, the national scale Issuer ratings on the bank reflect the strengths and weaknesses of the Group.

According to GCR, the rating affirmation is underpinned by Stanbic IBTC Bank’s sound competitive position, good risk profile, and healthy funding and liquidity position.

Further supporting the rating is the robust financial and technical support from its ultimate parent, Standard Bank Group, the largest banking group in Africa in terms of balance sheet size and one of the largest in terms of earnings, the note reads.

GCR stated that the group Competitive position is a positive ratings factor, underpinned by the Group’s strong and well-diversified business operations, spanning the full spectrum of the Nigerian financial landscape.

The bank’s operations spanned asset management, pension management, custodian services, insurance, trusteeship and stock broking.

“Cognizance is taken of the incorporation of the Group’s wholly owned fintech subsidiary (Stanbic IBTC Financial Services Limited) in January 2022, which is expected to improve product diversification”.

The bank continues to harness inherent cross-selling opportunities to serve a wide range of customers and ultimately enhance its financial performance and market position leveraging its membership of the Group.

As of 31 December 2022, Stanbic IBTC Bank controlled about 4.1%, 4.7% and 2.6% of the Nigerian banking industry’s total assets, loans and customer deposits respectively.

Stanbic IBTC Bank’s capital and leverage remain within the intermediate range of GCR’s assessment, according to rating note.

Over the past year, the bank’s capitalisation metrics have remained relatively stable, with a capital adequacy ratio well above the regulatory minimum of 10% for commercial banks with national authorisation.

The Group’s GCR core capital ratio registered at 21.5% at December 2022 versus 21.6% in 2021 on the back of a lesser growth in risk-weighted assets compared to internal capital generated.

The GCR’s core capital ratio is expected to range between 19%-20% over the next 12-18 months, factoring in moderate RWA growth and supported by good levels of internal capital generation, the rating note stated.

The bank’s loan loss provision is viewed to be strong, with reserve coverage of impaired loans consistently maintained above 100% over the review period. GCR said its risk position is sound, well contained and positive to the rating.

Stanbic IBTC Bank’s non-performing loans (NPL) ratio registered at 2.4% at December 2022 from 2.1% in 2021 and compared favourably with the regulatory tolerable limit of 5%.  Similarly, credit losses registered at a moderate 0.9% at December 2022 as against -0.2% in 2021.

“We expect asset quality metrics – NPL ratio and credit losses- to be sustained within similar levels over the next 12-18 months”.

GCR said in the rating note that Stanbic IBTC counterparty concentration is high, with the twenty largest obligors constituting 46.8% of the loan portfolio as of December 2022, a decrease from 48.5% reported in 2021.

Furthermore, the bank’s foreign currency (FCY) exposures accounted for 49.0% of the loan book as of December 2022 versus 51.0% level seen in the comparable period in 2021.

While this is slightly higher than the industry’s average, the bank’s focus on obligors with FCY receivables acts as a natural hedge against foreign exchange risk, according to GCR Rating note.

It rated positive on funding and liquidity assessment, reflecting the bank’s highly stable funding structure.

The funding structure predominantly comprises relatively stable customer deposits, which accounted for 86.1% of the funding base as of December 2022 from 86.4% in 2021.

GCR said its deposit book also supportive of funding costs, given that the relatively inexpensive current and savings account deposits contributed 71.3% to total deposits as of December 2022 from 75.2%.

This resulted in a weighted average cost of funds of 2.1% in 2022, up from 1.8%, adding that the deposit book is well-diversified.

Top twenty depositors accounted for a moderate 25.7% of total customer deposits as of December 2022, representing a significant decline from 33.6% in 2021.

“Liquidity coverage is good, with liquid assets covering 3.7x and 49.3% of wholesale funding and customer deposits respectively in 2022”, GCR said. It added that Stanbic IBTC Bank’s national scale Issuer ratings benefit from parental support.

The Group is 67.55% owned by Standard Bank Group, which is headquartered and listed in South Africa, delivering finance solutions across twenty African countries.

“Though the Group is not a material asset or revenue contributor to Standard Bank Group, there is evidence of support from and assimilation with the parent.

“We believe Standard Bank Group has the capacity to support the Group and bank based on its sound financial profile and good geographic diversification”, GCR Ratings stated.

Stanbic IBTC Bank’s N30 billion Structured Note Programme (SNP) Series 1 Senior Unsecured Notes was issued in December 2018 under the N150 billion SNP, with a five-year maturity and a coupon rate of 15.75%.

Analysts explained that coupon payments are made semi-annually in June and December, with a bullet redemption of the principal expected at maturity- December 2023.

GCR Ratings said the latest performance reports received from the Bond Trustees, dated 11 April 2023, indicate that there has been no breach of covenants by the Issuer on the Bond since inception up till the report date.

The stable outlook accorded to the issuer reflects GCR’s expectation that Stanbic IBTC Bank’s financial profile would remain strong despite the strains in the operating environment.

Credit losses and NPL ratio are expected to be contained; however, loan book concentration by the obligor and FCY is expected to persist. Funding and liquidity metrics are expected to be maintained at healthy levels in view of its improved deposit mobilisation capacity, GCR Ratings said in its report.