GCR Affirms Nova Merchant Bank Ratings with Stable Outlook
GCR Ratings has affirmed Nova Merchant Bank Limited’s national scale long and short-term ratings of BBB (NG) and A3(NG) respectively, with a stable outlook.
The emerging market rating agency said the rating affirmation on Nova Merchant Bank Limited reflects adequate capitalisation metrics, a risk position that is broadly within the average range of the industry as well as a stable funding and liquidity position.
“These strengths are however offset by the weaker earnings quality, limited geographical diversification, and concentrated customer base”, the rating note added.
According to the rating note, Nova Merchant Bank Limited has grown steadily over the years, registering a five-year cumulative average growth rate (CAGR) of 67.3% in total assets to N327.4 billion in the financial year ended 31 December 2023.
The bank controlled an estimated 18%, 21%, and 25% of the merchant banking subsector’s total assets, gross loans, and customer deposits respectively in 2023. However, its contribution to the broader banking industry remained less than 1%, GCR stated.
It also explained that during the first quarter of 2024, Nova MB received an approval-in-principle from the Central Bank of Nigeria for a commercial banking licence.
GCR is of the view that the bank’s anticipated transition to a full-fledged commercial bank could enhance its competitive position, over the longer term, through an improved market share diversified operations, and lower funding costs.
However, the rating agency said its assessment of Nova MB’s sustainability is neutral to the rating. GCR said Nova capitalisation is adequate for the bank’s operations.
Following a sustained moderation in Nova MB’s GCR core capital ratio from 30.9% in 2020 to 19% in 2022, the metric increased has to 23.8% as of 31 December 2023.
GCR core capital ratio improved further to 28.5% as of Q1, 2024 on account of a decline in risk-weighted assets (RWA), following the settlement of outstanding matured letters of credit obligations, and continuous growth in qualifying capital.
Nova MB’s shareholders’ equity strengthened to N32.3 billion in the first quarter of 2024 from N29.8 billion in FY2023, following the capital injection of N1.4 billion through a rights issue as well as the impact of earnings accretion.
With the regulatory-induced recapitalisation of the Nigerian banking sector, Nova MB plans to raise additional equity capital of over N160 billion through a combination of rights issue, private placement, and an initial public offer (IPO) within the two-year timeframe to meet the new capital requirements for the commercial banking license, GCR Ratings said.
“The stable outlook reflects our expectation that Nova MB’s GCR core capital ratio will be maintained within the 23% to 25.0% range over the next 12-18 months despite the expected growth post the bank’s transition to a commercial bank.
“Similarly, asset quality, funding, and liquidity metrics are expected to be sustained at sound levels”, the rating note explained. #GCR Affirms Nova Merchant Bank Ratings with Stable Outlook
