Globus Bank Grows Balance Sheet by 93%, Keeps Nil NPL- Rating Note
Globus Bank Limited grew its balance sheet and boosted its earnings profile strongly without undermining asset quality. GCR Ratings (GCR) has affirmed Globus Bank Limited’s national scale long and short-term ratings of BBB-(NG) and A3 (NG) respectively, with a stable outlook.
According to the rating note, the affirmation of Globus Bank Limited’s ratings reflects its sound risk position, stable funding structure, good liquidity, and improved competitive position.
The retail lender has the cleanest asset quality in the banking sector given its nil non-performing loan (NPL).
However, the rating agency said the bank’s capitalization metrics remain strained due to the significant growth in risk-weighted assets and the impact of the Naira devaluation in June 2023.
Globus Bank is a small, but fast-growing national commercial bank in Nigeria with a balance sheet size of N503.2 billion, equivalent to $1.1 billion at the financial year ended 31 December 2022, representing a significant growth from N260.1 billion in 2021.
The bank, according to GCR, accounts for a small market share of less than 1% of the Nigerian banking sector’s resources. Its deposit mobilisation is targeted at retail and corporate customers, while lending is largely focused on corporates, the rating note said.
Globus Bank operating revenues have grown steadily, registering a three-year cumulative average growth rate (CAGR) of 188.5% to N24.8 billion in 2022, GCR Ratings said.
It noted that the retail lender’s earnings are largely from the core lending business which contributed 86.4% to operating revenues while non-interest income accounted for 13.6%; market-sensitive income is minimal.
In the note, GCR said it recognises the uptick in non-interest expenses on the back of the bank’s expansion and additional capital raising exercise, although cost to income ratio has moderated over the years to 52.0% in 2022 from 82.6% in 2019.
Globus bank capitalisation is assessed at an intermediate level. The rating note said the Bank’s shareholders’ funds increased to N62.5 billion or $81.1 million as of 30 June 2023 from NGN53.8 billion on 31 December 2022.
This was a result of N10.6 billion capital injection and earnings accretion. However, the rating note stated that the growth in risk-weighted assets significantly outpaced internal capital generation due to the considerable (57.1%) growth in gross loans and the impact of the naira devaluation.
As a result, the GCR core capital ratio declined to 17.6% as of 30 June 2023 from 25.4%, in December 2021 when it settled at 39.5%.
Looking ahead, the bank intends to cushion the impact of the Naira devaluation, through the planned capital injection of about N10 billion via a rights issue before the end of December 2023, GCR Ratings said.
With the capital raise, analysts said they expect the GCR core capital ratio between 19%-20% over the next 12-18 months, noting that the bank’s risk profile is a positive rating factor.
This is underpinned by strong asset quality metrics since inception, according to the rating note. Globus Bank’s gross loans increased significantly by 127.8% from 96.7% in 2021 to N240.6 billion in 2022, and further to NGN377.9 billion in the six-month period to 30 June 2023.
Positively, GCR said around 86.6% of the loans have less than one year tenor, thus, the bank has maintained a nil non-performing loan ratio since inception, despite the aggressive growth in gross loans.
Although the credit losses ratio has increased to 1.5% in 2022 from -0.4% in 2021, it is in line with the industry average of about 2%. GCR ratings said the bank plans to keep credit losses below 1% over the next 12-18 months.
The rating note sees Globus bank loan book as well diversified, with the twenty largest obligors accounting for a lower 38.3% of gross loans as of 31 December 2022 from 57.9% in 2021.
In addition, foreign currency loans constituted about 27.0% in June 2023 of the loan portfolio, below the industry average of about 45%. FCY loan was 22.0% of the loan portfolio in 2021
“Our assessment of Globus Bank’s funding and liquidity is supported by a relatively stable funding structure and adequate liquidity position. The funding structure is largely dominated by customer deposits, which accounted for 87.9% of the funding base as of December 2022”.
The rating note revealed that customer deposits grew steadily over the review period, increasing by 91.2% to N309.6 billion as of 31 December 2022 and further to N354.3 billion as of 30 June 2023, underpinned by increased deposit mobilisation through the deployment of technology and expanding branch network.
Low-cost current and savings deposits contributed 57.0% to the deposit book, translating to a moderate cost of funds of 3.9% and 5.0% as of June 2023, reflecting the high-interest rate environment.
The bank’s deposit book is well diversified, with the twenty largest depositors accounting for a lower 17.3% of customer deposits as of 31 December 2022, GCR Rating said. Also, the rating note considers the lender’s liquidity adequate.
GCR liquid assets coverage of wholesale funding and customer deposits registered at 47.1x and 52.6% respectively as of December 2022.
The stable outlook reflects GCR Ratings expectation that Globus Bank will maintain the GCR core capital ratio within the intermediate range of 19%-20% over the rating horizon, underpinned by stronger earnings accretion and the planned capital injection.
Over the next 12-18 months, asset quality metrics are expected to remain at similar sound levels. GCR Ratings expect the good funding and liquidity position to be maintained, buoyed by the improved deposit mobilisation capacity through increased brand visibility and branch network. #Globus Bank Grows Balance Sheet by 93%, Keeps Nil NPL- Rating Note Naira Steadies as Banks Issue Update on FX Purchase
