Capital Raise: GCR Upgrades Providus Bank Rating With Positive Outlook
An emerging market-focused ratings firm, GCR has upgraded Providus Bank national scale long term issuer rating to BB+ (NG) and affirmed the short term rating of B (NG); with a positive outlook.
The company said in a statement on Tuesday, saying that the ratings accorded to ProvidusBank Plc reflect its limited competitive position, relatively stable funding structure, intermediate capitalisation, adequate liquidity, and moderate risk position.
Providus Bank ranks among the tier 3 banks in Nigeria, having a limited track record of about five years in the local commercial banking space, GCR said.
It added that the bank controlled a moderate market share of 0.8% and 0.9% in terms of the industry total assets and deposits respectively at the financial year 2020.
Furthermore, it hinted that Providus Bank competitive position is constrained by its evolving brand franchise, short track record, and limited local geographical diversification (being a regional bank by licence).
Given the small customer base, the emerging market-focused ratings firm said concentration risk is high, with the twenty largest obligors and depositors constituting 46.1% and 51.9% of gross loans and total deposits respectively at 2020.
“Though the bank operates with a regional licence and has only 10 branches, management confirmed to have access to customers across the country through aggregators, who are into agency banking, fintech, among others”.
GCR said it views the bank capitalisation at an intermediate level, with the GCR core capital ratio closing 2020 at 18.1% compared with 20.5% in 2019.
However, it said note is taken of the regulatory capital adequacy ratio, which although exceeded the statutory minimum at 10.5% at 2020 with a very thin buffer, the ratings agency stated.
Looking ahead, GCR said the bank is currently in the process of a capital raise of about N6.5 billion and, accordingly, expects to see a significant improvement in the CAR at the end of December 2021 notwithstanding the bank’s aggressive loan growth pace.
Providus Bank risk position is viewed to be contained, this is evidenced by the gross non-performing loans ending strongly at 2.6% at 2020 from 4.4% in 2019, favourably below the Central Bank of Nigeria tolerable maximum limit of 5% and the industry average of about 6%.
GRC analysts believe that the strength of the bank’s risk management is yet to be fully tested, given its relatively short track record. It stated that the bank’s concentration by obligor is considered moderately high, with the single and twenty largest exposures accounting for 3.4% and 46.1% respectively of the loan book at 2020.
“We expect a more diversified loan book over the short to medium term, as the bank continues to strategically expand its lending activities”.
In addition, foreign currency risk is considered minimal, with foreign currency loans constituting only about 6% of total exposures at 2020. The ratings hinted that funding and liquidity is a positive rating factor, noting that ProvidusBank is largely funded through customer deposits, which has constituted around 70% of the funding base over the review period.
The deposit book, which almost doubled in 2020, reflected the bank’s focus on the low-cost deposits, as the average cost of funds for the year was below 3%, the rating report noted. GCR however said the bank’s liquidity position is good, evidenced by the highly liquid nature of the balance sheet over the review period.
As of 2020, GCR liquid assets covered total wholesale funding moderately 2.2x, while the ratio of GCR liquid assets to total customer deposits stood at 69% from 41.3% in 2019, it said.
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“We note the sterilised funds with the CBN, representing about 46% of the deposit base at the first half of 2021 compare with 40% in 2019, which could be made available to the bank in a stressed scenario, thereby supporting the liquidity risk assessment”.
In addition, GCR said the matching of assets and liabilities maturities at 2020 reflected cumulative liquidity buffers across the various maturity bands.
The bank’s positive outlook reflects GCR’s expectations of more diversified funding as the bank grows its deposit base.
“We also anticipate an improvement in capitalisation upon the conclusion of the ongoing capital raise, supported by sound internal capital generation, and adequate loan loss reserving”, GCR added.
