GCR Affirms Development Bank of Nigeria AAA (NG)/A1+(NG) Ratings
GCR Ratings (GCR) has affirmed Development Bank of Nigeria Plc’s (DBN or the Bank) national scale long and short-term issuer ratings of AAA(NG) and A1+(NG) respectively.
Also, GCR has affirmed DBN’s Series 1 N23.0 billion Senior Unsecured Bonds national scale issue rating of AAA (NG), maintained stable outlook on the ratings. According to the report, the ratings are underpinned by DBN’s robust capitalisation, good risk profile, stable funding base, adequate liquidity structure and the progressive delivery of its mandate to address financing constraints of Micro, Small and Medium Enterprises (MSMEs).
DBN, the core operating entity within a wider group, comprising the Bank and a wholly owned subsidiary, Impact Credit Guarantee Limited (ICGL), together referred to as the Group.
GCR reported that DBN accounted for 92.0% and 92.2% of the Group’s total assets and operating revenue respectively as of 2024 financial year which ended 31 December 2024. Overall, the Bank’s ratings reflect the credit strengths and weaknesses of the Group.
“Our assessment of DBN’s competitive position reflects the delivery of its mandate to address the funding needs of MSMEs in Nigeria by providing access to cheaper and long-term financing through participating financial institutions (PFIs), which serves as intermediaries.
“Additionally, the Group incentivises PFIs to lend to MSMEs by providing partial guarantees through ICGL, which covers up to 60% of loans to eligible MSMEs. The Group has made notable progress in its mandate delivery, reflected by the consistent growth in the loan book over the last five years.
However, analysts said mandate execution is somewhat constrained by the challenging operating environment and its stringent eligibility criteria, which limit the number of PFIs that can access funding.
As such, the Group’s gross loans and advances grew moderately by 6.5% to N439.2 billion, equivalent to USD285.2 million in 2024 and accounted for 57.9% of total assets.
Looking ahead, GCR stated that DBN plans to prudently deploy the direct lending window- which is limited to 20% of the loan book- to provide financing to corporates whose operations (acting as aggregators or on-lending agents) can positively impact MSMEs, thus supporting mandate delivery”.
The African focused rating agency said the Group’s robust capitalisation is a major rating strength. DBN’s GCR core capital ratio improved to 52.0% in 2024 from 49.5% in 2023, underpinned by strong internal capital generated compared to the loan book growth.
Similarly, guarantees to total equity remained minimal at 14.4% versus 13.2% in 2023, GCR analysts expect the core capital ratio to remain above 35% over the outlook period, supported by sustained earnings accretion and prudent loan book growth.
DBN’s risk position is supported by its stringent underwriting standards, proactive monitoring of exposures and adequate collateralisation including treasury bills, bonds and movable assets – registered with the National Collateral Registry.
The rating note explained that the Bank also has direct debit mandates on PFIs’ account with the Central Bank of Nigeria. DBN’s non-perrforming loan (NPL) ratio registered at a low 0.2% in 2024 from Nil in 2023, while the credit loss ratio was 0.3%.
Nonetheless, concentration risk remains high, with the top twenty obligors accounting for 98.0% of gross loans as of December 2024 from 97.2% in 2023. However, this risk is mitigated by the good credit profile of these obligors, most of which are top tier banks in Nigeria.
“We also noted some credit risks from ICGL which guarantees loans given to MSMEs by PFIs, although, the ratio of called guarantees to cumulative guarantees remained low at 0.9% in 2024 from 0.7% in 2023”.
The Bank’s risk profile is expected to remain sound over the outlook horizon, the rating note stated. GCR analysts assessed funding and liquidity as a positive to the rating, reflecting the stable funding structure which predominantly comprises concessionary financing from development financial institutions (DFIs).
Analysts explained that this accounted for 95.6% of the funding base in 2024 compared with 86.1% in 2023 and supported a decline in cost of funds to 3.7% compared to 4.2% in 2023.
“Nonetheless, we note refinancing risks that exist as maturity dates approach, except the funds are refinanced well in advance. The Group’s funding base grew by 55.1% in 2024 to register at NGN453.3 billion (USD295.1 million).
“This increase in funding supported liquidity, with liquid assets accounting for 32.0% as of 31 December 2024 (2023: 22.0%). Looking ahead, we expect the Group’s funding and liquidity to remain strong, supported by prudent loan book growth and additional financing from DFIs”.
The Series 1 N23.0 billion Senior Unsecured Bonds (the Series 1 Bonds) was issued in June 2023 under the DBN’s (the Issuer) N100 billion Bond Issuance Programme (the Programme) registered with the Securities and Exchange Commission (SEC) in April 2022.
The Issuer’s payment obligations of the Issuer under the Series 1 Bonds and in respect of principal and any coupon on the Series 1 Bonds rank at least equally with all unsecured and unsubordinated obligations of the Issuer, both present and future except for obligations mandatorily preferred by law applying to companies generally.
Given that the Issuer offers timely and full coverage of all payments due to the bondholders, under the Series 1 Bonds, the Bonds bear the same default risk as its Issuer and would reflect similar recovery prospects to the senior unsecured creditors in the event of a default.
“We have reviewed the performance report provided by the joint trustees (to the bondholders), dated 18 March 2025 and noted that three coupon payments totalling N4.9 billion had been made. The trustees did not report any breach”.
GCR said the stable outlook reflects its analysts expectation that the Group’s business profile and financial performance to be sustained over the next 12-18 months. The GCR core capital ratio is expected to remain above 35.0%, supported by earnings retention and conservative lending in line with the stringent underwriting criteria.
Funding is expected to remain stable and diversified through the inflow of more wholesale borrowings from international development finance institutions and other funding sources, the rating note stated. #GCR Affirms Development Bank of Nigeria AAA (NG)/A1+(NG) Ratings US Dollar Slides as Trade Tensions Cloud Sentiment
