GCR affirms TrustBanc Holdings Ratings with Stable Outlook
GCR Ratings has affirmed TrustBanc Holdings Limited’s national scale long and short-term Issuer ratings of BBB (NG) and A3 (NG) respectively, with a stable outlook.
The rating affirmation on TrustBanc Holdings Limited’s balances a sustained strong financial leverage ratio, stable funding structure, adequate liquidity and good risk position against modest competitive position which is constrained by a low earnings profile relative to peers, the rating note reads.
According to GCR rating note, TrustBanc, a diversified financial services group, operates asset management, microfinance banking, capital management and structured finance.
“While growth was noted across major subsidiaries, the group’s competitive position remains constrained by its small size and lower operating revenues relative to peers”, GCR stated.
TrustBanc group’s asset management subsidiary grew it funds under management (FUM) to N41.8 billion or USD25.0 million as of October 2024 from N36.4 billion in December 2023.
The expanded asset under management was underpinned by the launch of a new fund as well as growth in the existing funds, according to the rating note.
“TrustBanc continues to build a digital footprint with its mobile application – “Prime”, which has supported customer acquisition for the microfinance subsidiary”, GCR said.
Analysts explained that the sustained growth trajectory has supported an improvement in earnings with operating revenue registering N2.9 billion or USD1.7 million as of October 2024 versus N2.0 billion in 2023, although this still lags behind peers.
The group plan to incorporate an insurance broking subsidiary and other financial services operations could further support business diversification and earnings capacity over the next 12-24 months, the rating note said.
GCR said TrustBanc’s capital and leverage assessment is a ratings strength, underpinned by a sustained strong leverage ratio.
The group’s shareholders’ funds of N15.4 billion in October 2024 continue to support the GCR leverage ratio at 23.0%, up from 21.5% in Dec 2023.
Analyst said they expect the GCR leverage ratio to be sustained above 20.0%, on the back of a conservative growth and allocation of assets as well as a stronger capital base.
Also, the rating note explained that the group’s risk position is slightly positive to the ratings. As of 31 October 2024, the group’s asset quality metrics compare favourably with peers and industry’s averages, with the non-performing loans (NPLs) ratio and credit loss ratio registering at 0.5% and 1.4% respectively.
Loan loss reserve coverage of NPLs was sufficient at over 100% as of October 2024 and collateral cover for the loan book remains adequate, according to GCR Ratings.
It however noted that obligor concentration persists in the loan portfolio, with the top 20 largest exposures accounting for 45.6% of gross loans as of October 2024 – down from 51.3% in Dec 2023 – largely constituting of structured finance facilities.
“This level of obligor concentration poses some risks to asset quality, given the weak operating environment. Nonetheless, we expect TrustBanc’s asset quality metrics to be maintained within the industry’s average over the outlook horizon, supported by a conservative risk management framework”, GCR said.
The report revealed that group’s funding and liquidity assessment is positive to the ratings; underpinned by moderately diversified funding base and adequate liquidity.
According to GCR, the group is largely funded by managed funds, customer deposits and commercial papers issued in the debt capital market.
The group’s funding base increased by 21.0% to NGN50.0 billion at October 2024 from N28.0 billion in Dec 2023, reflecting growth in managed funds and new commercial papers issuance.
The group’s funding structure coupled with high-interest rate environment led to high cost of funds, registering 15.8% as of October 2024 from 11.2% in Dec 2023 and expected to remain high, barring immediate access to inexpensive and long dated funding.
Liquidity remains adequate, GCR liquid assets coverage of customers’ deposits and wholesale funding registering at 46.6% and 5.8x respectively as of October 2024.
GCR analysts believe that TrustBanc committed lines of credit with financial institutions could provide further liquidity support when needed.
“We expect the group’s funding and liquidity profile to remain stable and robust over the outlook period”.
The stable outlook reflects expectations that TrustBanc will sustain its growth trajectory and good risk management across its subsidiaries, with the successful incorporation of the Insurance brokerage subsidiary and other financial services operations providing additional growth prospects.
The rating analysts expect the GCR leverage ratio to be sustained above 20% over the next 12-18 months, on the back of strong shareholder support. #GCR affirms TrustBanc Holdings Ratings with Stable Outlook#
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