GCR Assigns BBB+ (NG) to NPF MfB with Stable Outlook
GCR Ratings has assigned NPF Microfinance Bank Plc national scale long-term and short-term issuer ratings of BBB+ (NG) and A2 (NG) respectively, with the outlook accorded as stable.
According to the rating note, the ratings assigned to NPF Microfinance Plc reflect the bank’s strong capitalisation, well-contained risk position, stable funding structure and modest market position.
NPF MfB operates a national microfinance banking license in Nigeria, with 37 branches as of the financial year 2021 covering the major regions in Nigeria, GCR Ratings said. READ: FCMB Asset Management Outlook Improves, Gets BBB+ Rating
It revealed in the rating note that the microfinance bank has a customer base of 602,471 as of the financial year 2021, predominantly comprised of members of the Nigerian Police Force. NPF balance sheet size printed at N32.0 billion as of financial 2021, an increase when compared with N25.1 billion reported in the comparable period in 2021.
According to GCR, NPF MfB contributes an estimated 3.9%, 4.5% and 5.4% to the microfinance sub-sector’s total assets, customer deposits and loans respectively, which compares very well to the microfinance peers in the market.
The rating firm added that the NPF MfB has maintained a positive trajectory in net interest income, albeit earnings have been impacted by the relatively high cost-to-income and pressures on fee income over the review period – from 2017 to 2021. GCR said management and governance assessment is neutral to the ratings, but noted that the bank capitalisation is positive to the ratings.
Through the review period, NPF MfB has maintained a capital adequacy ratio that is significantly above the 10% regulatory minimum for its license category at 21.3% in 2021 from 31.7% in 2020. As the bank’s capital is comprised mainly of tier 1 capital, the GCR Core Capital ratio is also high, registering at 23.0% in 2021 as against 33.4% in 2020.
“Although steep growth in risk-weighted assets continues to pressure the bank’s capitalisation, we expect the capital position to remain within the high band over the next 12-18 months, due to the injection of N4.6 billion in tier 1 capital concluded in 2021, to be reflected in the bank’s 2022 financial position”, GCR stated.
Also, the rating revealed that reserve coverage is considered adequate, with loan loss provision to Stage 2 and 3 loans ratio registering at 73.2% as at 2021 from 88.8% in 2020, providing a good buffer against expected losses.
NPF Mfb’s risk position is a moderately positive ratings facto, GCR analysts said in the rating note. They explained that asset quality proved resilient to the 2020 Covid-19 pandemic, as the bank was able to contain its credit loss ratio at 0.2% as of 2021 from 0.8% in 2020 which compares very well to peers, although Stage 3 non-performing loans increased to 4.0% at 2021 from 3.5% at 2020.
The bank has also maintained its portfolio at risk below the 5% regulatory tolerance limit of 4.1% in 2021. Restructurings made as part of the regulatory forbearance measures in 2020 were modest, at less than 1.0% of the loan book, with over 90% of the restructured facilities having been repaid in full as at March 31, 2022, according to GCR Ratings.
The firm said reflective of its business model as a microfinance bank, obligor concentration in the loan book is low; the top twenty obligors contributed less than 1.0% to gross loans and advances as of 2021.
However, there is intrinsic sectorial concentration, as the loans are granted largely to consumers and small businesses, a segment of the market that tends to be disproportionately impacted by the high inflationary environment, it added.
The rating company said NPF MfB market and foreign exchange risk are minimal due to the limited scope of operations permitted by the microfinance banking license, and operational risk is considered contained.
The funding profile is considered stable. Customer deposits contributed 85.7% to the funding base as of FY2021 compared against 83.2% in 2020, above the median 74.2% for GCR rated peers in the market.
The rating note stated that NPF MfB deposit book is moderately diversified; the top twenty depositors contributed 15.5% to total customer deposits while the relatively inexpensive current and savings accounts accounted for 86.3% of customer deposits as of 2021.
GCR liquid assets coverage of customer deposits is considered modest at 46.7%, while coverage of wholesale funding is strong at 2.8x as of 2021, reflective of the predominance of deposits in the funding structure.
However, the ratings noted that the bank has maintained relatively high loans-to-deposits ratio of over 100% through the review period, which has exposed it to short-term maturity mismatches within the critical less than 3-months maturity bucket, as the maturity profile of the loan book is slightly skewed toward the 6-months to 1-year maturity bucket.
The stable outlook accorded reflects GCR’s opinion that NPF will maintain its strong asset quality metrics over the next 12-18 months.
“We also expect the bank’s GCR Core Capital Ratio to remain within the high range (>30%) notwithstanding the expected steep growth in RwA”, GCR Ratings added. # GCR Assigns BBB+ (NG) to NPF MfB with Stable Outlook