Development Bank of Nigeria Rated AAA, Outlook Stable –GCR
GCR Ratings has affirmed Development Bank of Nigeria Plc.’s national scale long- and short-term issuer ratings of AAA(NG) and A1+(NG) respectively, with a stable outlook.
According to the rating note, the affirmation of DBN’s ratings reflects the gradual stability in delivery of its mandate, solid capital base, minimal risk exposures and sound liquidity metrics.
DBN is a wholesale development finance institution, licensed by the Central Bank of Nigeria (CBN), with the mandate of improving access to financing for the micro, small and medium scale enterprises (MSMEs), by providing wholesale financing, provision of technical assistance and credit guarantee to eligible participating financial institutions (PFIs).
While DBN is focused on the performance of the first two aspects of its mandate, the last one is performed through a wholly-owned subsidiary of the bank, Impact Credit Guarantee Limited, GCR said. READ: DBN: Rolled Out Contacts for SMEs, Startup Loan Applications
The rating also added that DBN has steadily grown its loan book over the last 5 years of operation, from N182 million in the financial year 2017 to N322 billion as of December 2021. Similarly, the number of registered PFIs has increased to 51, and disbursed to about 28 PFIs as of the balance sheet date, the rating note stated.
GCR said the competitive position of the bank remains constrained by the overall size of its portfolio relative to the larger banking industry, the growing but relatively short track record, single product offering and limitation in the number of PFIs the bank can serve.
“We expect competitive position score to remain largely the same in the short term and improve gradually over the medium to long-term as disbursements and distribution through the PFIs increases”.
The rating note revealed that the bank management and governance is neutral to the rating, given the robustness of the board, with representation by the Federal Government of Nigeria (FGN) and other international partners.
However, it noted that DBN’s strong capital base remains a key strength in support of the rating.
Though GCR’s tier 1 capital to risk-weighted asset ratio declined to 51% in the financial year 2021 from 60% at audited 2020, the ratio is considered strong and well above the regulatory minimum.
“While we expect the capital adequacy ratio to continue to moderate as the bank scales up operations and grows risk assets, our forecast shows that the metrics will remain strong over the next 12-18 months, GCR said.
Overall risk exposure is considered minimal and a neutral score to the rating. It said the total loan book grew 50% to N322 billion in the financial year 2021, GCR considered this as modest when compared to credits in the industry.
Also, it said DBN’s non-performing loans remain nil from inception to date and have no exposure to foreign exchange risk.
The ratings added that the bank’s underwriting process is supported by its strict risk acceptance criteria for different categories of PFIs, and the fact that all its loans are backed by a direct debit mandate (where possible) on the PFI’s accounts with CBN remains a rating positive.
“While the concentration of exposures to financial institutions sector remains unchanged, risk position is expected to remain sound over the next 12-18 months”, it said.
GCR considered the bank funding and liquidity profile as a strength to the rating. The rating firm said DBN maintained a highly liquid balance sheet throughout the review period.
Also, operations are funded through long tenored wholesale funds obtained from international development financial institutions through the Federal Government of Nigeria.
“Management has informed GCR of the ongoing registration process of a N100 billion programme with the plan to issue a part of it before year-end. Going forward, we expect funding and liquidity to remain solid over the next 12-18months”, according to the rating note.
The stable outlook reflects GCR’s expectation that DBN will maintain a strong financial profile which would help absorb exposures from the growing risk assets over the next 12-18 months.
The rating note reads that the bank earnings is expected to continuously reflect core operations as risk assets continue to grow, which is a positive for the earnings profile. #Development Bank of Nigeria Rated AAA, Outlook Stable –GCR
