GCR Ratings (GCR) has affirmed Stanbic IBTC Bank PLC’s (the bank) national scale long and short-term issuer ratings of AAA(NG) and A1+(NG) respectively. Concurrently, GCR has affirmed Stanbic IBTC Bank PLC’s NGN30Bn Series 1 Senior Unsecured Notes national scale issue rating of AAA(NG). The rating Outlook is Stable.
Rating Rationale
Stanbic IBTC Bank PLC (Stanbic IBTC Bank or the bank) is considered a core operating entity to Stanbic IBTC Holdings PLC (the Group), as such, the national scale Issuer ratings on the bank reflect the strengths and weaknesses of the Group.
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.
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, such as 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. Leveraging its membership of the Group, 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. 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. Management and governance assessment is considered adequate and a neutral ratings factor.
Stanbic IBTC Bank’s capital and leverage remain within the intermediate range of GCR’s assessment. 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 (December 2021: 21.6%) on the back of a lesser growth in risk-weighted assets (RWA) 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. Positively, loan loss provision is viewed to be strong, with reserve coverage of impaired loans consistently maintained above 100% over the review period.
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 (December 2021: 2.1%) and compared favourably with the regulatory tolerable limit of 5%. Similarly, credit losses registered at a moderate 0.9% at December 2022 (December 2021: -0.2%). We expect asset quality metrics (NPL ratio and credit losses) to be sustained within similar levels over the next 12-18 months. Conversely, counterparty concentration is assessed to be high, with the twenty largest obligors constituting 46.8% of the loan portfolio as of December 2022 (December 2021: 48.5%). Furthermore, foreign currency (FCY) exposures accounted for 49.0% of the loan book as of December 2022 (December 2021: 51.0%). 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.
Funding and liquidity assessment is a rating positive, 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 (December 2021: 86.4%). The deposit book is 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 (December 2021: 75.2%), resulting in a weighted average cost of funds of 2.1% in 2022 (2021: 1.8%). Also, the deposit book is well-diversified, as the top twenty depositors accounted for a moderate 25.7% of total customer deposits as of December 2022 (December 2021: 33.6%). Liquidity coverage is good, with liquid assets covering 3.7x and 49.3% of wholesale funding and customer deposits respectively in 2022.
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.
Stanbic IBTC Bank’s NGN30Bn Structured Note Programme (SNP) Series 1 Senior Unsecured Notes (the Series 1 Notes) was issued in December 2018 under the NGN150bn SNP, with a five-year maturity and a coupon rate of 15.75%. Coupon payments are made semi-annually in June and December, with a bullet redemption of the principal expected at maturity (December 2023). 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 Series 1 Notes constitute senior, direct, irrevocable, and unsubordinated obligations of the Issuer, and shall rank pari passu without any preference among themselves and all unsecured and unsubordinated indebtedness and monetary obligations of the Issuer, present and future; however, in the event of insolvency, only to the extent permitted by applicable laws relating to creditors’ rights.
Being a senior unsecured debt, the Series 1 Notes bear the same default risk as the Issuer and would reflect similar recovery prospects to the senior unsecured creditors in the event of a default.
Outlook Statement
The stable outlook 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 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.
