GCR Affirms Nova Commercial Bank Ratings of BBB(NG)/A3(NG)
GCR Ratings has affirmed Nova Commercial Bank Limited’s national scale long and short-term ratings of BBB (NG) and A3 (NG) respectively, with the outlook revised to evolving from Stable.
The African focused ratings agency said its affirmation reflects Nova Commercial Bank Limited’s stable funding structure, adequate liquidity, sound capitalisation and asset quality metrics.
The bank’s BBB (NG) rating represents a good level of creditworthiness for the long term, while A3(NG) signifies a strong capacity for meeting financial commitments in the short term.
However, ratings analysts highlighted that these positives are partly offset the bank’s modest competitive position, earnings quality, and sustained loan book concentration.
The ratings note recalled that Nova Bank Limited transitioned to a national commercial bank in July 2024, having operated as a merchant bank for five years.
This strategic move was aimed at broadening the bank’s product offerings and reaching a wider customer base through the phygital business model supported by agency banking networks and partnerships with market leaders within the fintech space.
However, given the new capital requirement for national commercial bank, Nova Bank has opted for a regional bank with plans to concentrate its operations in the southern regions and the FCT.
With a balance sheet size of N373.5 billion or USD258.1 million as of 31 December 2024, Nova Bank’s market share remains moderate, according to the rating note.
GCR rating analysts are of the view that that expansion drive and retail segment penetration aim to boost the commercial bank market share could support its assessment over the next 12-24 months.
In the financial year ended 2024, Nova Bank’s operating revenues grew by about 112% year on year to N18.2 billion, up from N8.6 billion in 2023 with non-interest income accounting for 67.7% of operating revenues.
But earnings quality remains weak, given the bank’s sustained reliance on market-sensitive income, which accounted for 47.3% of operating revenues in 2024, a decline from 53.8%.
“We assessed capitalisation as positive ratings factor, underpinned by additional capital injection and earnings accretion. As a result, the GCR core capital ratio improved to 28.2% as of 31 December 2024 from 23.8% in the prior year.
“Looking ahead, we expect the GCR core capital ratio to range between 25.0%-27.0% balancing the bank’s expected loan book growth and the ongoing capital raising initiatives to comply with the new minimum capital requirement for a regional commercial bank.
The bank’s loan loss reserve coverage of stage 3 loans declined sharply to 33.8% in 2024 from 338.3%, due to credit migration in the loan book.
Risk assessment is also noted as positive to the bank’s ratings, underpinned by strong underwriting standards. As of 31 December 2024, the bank’s non-performing loan (NPL) ratio increased to 1.9% due to the macroeconomic induced credit migrations.
Rating note hinted that its obligor concentration remains high, with the top 20 obligors accounting for a considerable 87.8% of the loan book as of 31 December 2024 versus 87.0%.
The bank’s loan book growth strategy to widen customer base and sectors could support diversification over the outlook horizon, GCR stated.
Foreign currency loans accounted for a lower 25.5% of gross loans versus 34.2% in 2023, with inherent risk mitigated through natural hedge.
“We expect the asset quality metrics to be sustained at sound level, although it remains susceptible to the challenging operating environment”, GCR ratings analysts said.
Nova Bank’s funding structure is considered to be stable, predominantly dominated by customer deposits which accounted for 83.9% of the total funding base as of 31 December 2024.
However, customer deposits declined by 2.5% to N157.8 billion, reflecting a strategic shift from the expensive institutional term deposits to the low-cost current, savings account (CASA) deposits given its commercial banking license.
As a result, the CASA deposits grew considerably to N47.1 billion from N14 billion in 2025 and supported a lower cost of funds of 14.0% in 2024 as against 16.0%) for 2023, although remains above industry average.
Depositor concentration also improved, with the top twenty depositors accounting for 60.7% of customer deposits, from 85.0% in 2023.
GCR said in its rating note that the continued investments in digital innovation and the rollout of retail-focused products could support mobilisation of low-cost deposits and drive a gradual decline in funding costs over the rating horizon.
“We also considered the bank’s liquidity position to adequate, with the GCR liquid assets coverage of wholesale funding and customer deposits solid at 14.9x and 86.8% respectively as of 31 December 2024”
The evolving outlook reflects the potential changes in the ratings over the outlook period due to transition to commercial banking from merchant banking impact of loan book evolution on capitalisation, and funding mix and cost. #GCR Affirms Nova Commercial Bank Ratings of BBB(NG)/A3(NG)#
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