Fitch Affirms Stanbic IBTC Holdings Topnotch Ratings
Ratings agency Fitch affirms Stanbic IBTC Holdings’ top-notch ratings with an outlook accorded as stable, citing solid capital adequacy ratio, profitability, and sound asset quality.
Despite the tough economic environment, the bank was able to boost its profitability performance without losing sight of asset quality with a record of improved key performance metrics.
In its latest rating note, Fitch affirmed Stanbic IBTC Holdings Plc and its 99.9% owned subsidiary, Stanbic IBTC Bank PLC, at ‘AAA (nga)’, and said the National Ratings are driven by potential support from their ultimate parent, South Africa’s Standard Bank Group Limited.
SBG owns 67.55% of Stanbic IBTC, which in turn owns 99.9% of Stanbic IBTC Bank. The ratings reflect SBG’s propensity and ability to support both entities, if needed, considering its ‘BB-‘ rating and Nigeria’s ‘B-‘ Country Ceiling.
Fitch anchored the rating on SBG’s willingness to provide support. It pointed to Stanbic IBTC’s strategic importance as the holding company for its leading corporate and investment banking and wealth businesses in Nigeria.
It also considers SBG’s controlling ownership of Stanbic IBTC, high integration, shared branding, and modest contribution to net income. Banks continue to contend with US dollar shortages and the Central Bank of Nigeria’s (CBN) highly burdensome cash reserve requirement.
Fitch expects reform progress under the new administration, including the elimination of fuel subsidies and gradual liberalisation of the Nigerian naira.
However, there is a risk of a sharp naira depreciation due to the large disparity between the official and parallel exchange rates. The CBN has increased its policy rate by 700 basis points since April 2022 due to rising inflation.
In the rating note, Fitch said Stanbic IBTC Bank controls 4% of sector assets in 2022. The banking arm also accounted for 94% of Stanbic IBTC’s consolidated assets in the period.
If needed, Fitch believes that support from SBG would extend equally to both entities. Stanbic IBTC lending to Oil and gas remained high, accounting for 20% of gross loans but below peers’.
Fitch also noted that Stanbic IBTC’s sovereign exposure via securities and CBN cash reserves is very high relative to common equity Tier 1, albeit, on sound asset quality.
The impaired loans ratio rose to 2.5% in the first quarter of 2023 from 2.3% at year-end in 2022 as the portfolio seasoned following fast growth in 2022 and 2021.
“We expect the ratio to increase moderately in the near term given operating environment pressures”. At 121% at the end of the first quarter of 2023, the bank’s total reserves coverage of impaired loans is noted to be high.
Stanbic IBTC’s annualised operating profit/risk-weighted assets (RWAs) ratio rose to 7.7% in 1Q23 from 5.5% in FY 2022 due to a wider net interest margin amid the higher interest rate environment and strong trading gains.
The rating note stated that this profitability level was supported by Stanbic IBTC’s diversified business model, sustained net fees and commission growth, and moderate loan impairment charges.
The bank’s CET1 ratio declined to 18.4% in the first quarter from 19.5% in December 2022 but remains strong owing to solid internal capital generation.
Stanbic IBTC’s total capital adequacy ratio printed higher at 19.6% in Q1-2023, a solid buffer over its 11% minimum regulatory requirement under Basel III.
Fitch said the Bank’s funding profile is stable due to good brand recognition, while a significant share of deposits is in the form of current and savings accounts (CASA).
The global credit ratings agency also said the bank’s liquidity buffers as sufficient in local and foreign currency. #Fitch Affirms Stanbic IBTC Holdings Topnotch Ratings
