GCR Affirms Rand Merchant Bank Nigeria Rating, Upgrades Outlook
GCR Ratings has affirmed Rand Merchant Bank Nigeria Limited’s (RMBN) national scale long- and short-term issuer ratings of AA-(NG) and A1+(NG), respectively, with the outlook revised to positive from stable.
In its rating note, GCR said the ratings on Rand Merchant Bank Nigeria Limited reflect strong capitalisation, a good risk position, and an adequate funding and liquidity profile.
The ratings are also bolstered by strong support from the parent, FirstRand Group Limited, one of the largest financial services groups in Africa, with total assets of USD 109.1 billion as of 31 December 2024.
RMBN’s competitive strength is anchored on its position as a wholly owned subsidiary of FirstRand, enabling it to leverage the financial strength and global reach of the Group to deliver various products and services to its corporate customers in Nigeria.
The bank’s niche focus and operational efficiency continue to support good earnings performance, with profitability metrics measuring well above peers.
However, the bulk of the earnings remain concentrated in highly volatile, market-sensitive income, which constituted 59.1% of the gross revenues of 31 December 2024, from 60.8% in the comparable period.
The rating note explained that RMBN operates as a major player within the Nigerian merchant banking segment, accounting for 23.6%, 25.9%, and 12.6% of the subsector’s total assets, loans, and customer deposits, respectively, as of 31 December 2024.
However, the bank’s share of the wider Nigerian banking sector’s resources in terms of total assets, customer deposits, and loan portfolio remains small, similar to other merchant banks.
Historically, RMBN has demonstrated good capital management, with relatively modest internal capital generation, comfortable dividend payout ratios, and cautious growth in risk-weighted assets (RWA).
As a result, the capital adequacy ratio (CAR) has been consistently maintained well above the 10% regulatory minimum for its license category, providing robust buffers for loss absorption and sufficient headroom for growth.
In the 2024 financial year, the bank successfully completed a N16 billion equity injection, which led to a significant improvement in the GCR core capital ratio to 35.9% from 27.3% in the prior year.
Looking ahead, GCR said a planned additional N16 billion capital injection alongside modest earnings and slower RWA growth is expected to sustain the GCR core capital ratio above 30% over the next 12-18 months.
Risk assessment is positive to the ratings. The bank has maintained a sound risk management profile underpinned by a stringent underwriting criteria, rigorous selection and monitoring process, and adequate collateralisation using cash, all asset debentures, and negative pledges.
However, in the 2024 financial year, RMBN recorded its first non-performing loan (NPL) in over a decade of operations, stemming from delayed interest payments by a key obligor.
This resulted in a NPL ratio of 1.4% as of 31 December 2024, although credit loss ratio remained well contained at below 1% (31 December 2023: 1.3%). Management anticipates full resolution of the delinquent facility by full year 2025, which could restore the NPL ratio to its historically clean level.
Nonetheless, GCR analysts said they maintain a cautiously optimistic outlook given the bank’s strategic plans to expand into the relatively riskier top-tier commercial segment that is typically less sensitive to pricing but carries higher credit risk.
Counterparty concentrations remained high with the top 20 obligors constituting 98.6% of gross loans as of 31 December 2024 from 97.2% in 2023.
Similarly, sector concentrations are high as the manufacturing and transport and communications jointly accounted for 75.6% of the loan book as of 31 December 2024 from 86.1% in 2023.
That said, GCR analysts highlighted that they take comfort in the fact that the manufacturing exposures are spread across major players in diverse industries, offering some degree of diversification.
Positively, the bank has made significant progress in de-risking its balance sheet as Foreign Currency (FCY) loans constituted a much lower 13.6% of the total loan book as of 31 December 2024 versus 44.8% in 2023, due to focused repayments and slowdown on new FCY lending.
Overall, RMBN’s risk position is expected to remain sound over the rating horizon, GCR ratings said. “Our assessment of RMBN’s funding and liquidity is neutral to the ratings. The bank’s activities are largely funded by customer deposits, which accounted for 80.8% of the funding base as of 31 December 2024 from 47.1% in 2023.
“However, given the nature of the merchant banking license, the customer deposits largely comprise price-sensitive wholesale deposits from corporates and financial institutions. Reflective of the high-interest rate environment and a reliance on institutional funding, the average cost of funds registered higher at 7.3% in 2024, compared to the 5.0% in 2023.
“Local currency liquidity is considered robust, with GCR liquid assets coverage of wholesale funding and customer deposits registering at 7.6x and 180.9% as of 31 December 2024. Being a wholly owned subsidiary of FirstRand, the bank’s ratings benefit from Group support. GCR analyst said they have observed a history of strong support and assimilation with the parent, with RMBN playing a key role in FirstRand’s thrust into the Nigerian market.
The positive outlook is noted to reflect the likelihood of upgrading the ratings in the next 12-18 months if RMBN sustains its strong capitalisation levels while maintaining sound asset quality metrics such that NPLs and credit losses do not deteriorate from current levels. #GCR Affirms Rand Merchant Bank Nigeria Rating, Upgrades Outlook Nigeria Boosts Trade Surplus to N5.17trn as Imports Taper
