GCR Upgrades Coronation Merchant Bank Ratings Outlook to Stable
GCR Ratings has affirmed Coronation Merchant Bank Limited’s national scale long and short-term issuer ratings of BBB-(NG) and A3(NG), respectively, and revised the outlook to stable from negative.
According to the rating note, Coronation Merchant Bank Limited’s ratings balance the company’s sound risk profile and strong liquidity against modest competitive position and capitalisation assessments.
GCR Ratings analysts stated that the merchant bank’s capitalisation has improved steadily over the past two years, underpinned by equity injection, earnings accretion, and cautious risk-weighted asset growth. In 2024, the combined effect of the reduced cash reserve ratio and monetary policy rate hikes supported a 132.3% increase in operating revenue to N33.3 billion.
Ratings analysts explained that the consequent increase in profitability saw the bank’s GCR core capital ratio increase to 14.6% in 2024 from 12.8% in 2023, saying that market sensitive incomes which are typically volatile, continue to drive earnings.
“We expect the GCR core capital ratio range between 15.0% to 17.5% with an upside risk if the planned equity raise of NGN32.0 billion -per the central bank’s new capital guidelines- materialises”.
Coronation Merchant Bank operates as a top tier merchant bank in Nigeria, with service offerings that span across investment and corporate banking, wealth management, trade finance and treasury services.
GCR revealed that the bank’s position within the merchant banking subsector is strong, accounting for about 38%, 37% and 34% of the subsector’s loans, deposits, and total assets, respectively, as of 31 December 2024.
Ratings analysts said the bank’s growth has trailed that of the broader banking sector over the past three years, as a result of the efforts to manage capitalisation which limited asset growth.
As such, Coronation Merchant Bank’s share of total industry assets moderated and remains below 1%, thus tempering the overall strength of its competitive position.
The merchant bank’s risk profile is considered to be sound, underpinned by the stringent underwriting criteria, rigorous selection and prudent monitoring of exposures.
According to GCR, the bank has maintained nil non-performing loans (NPLs) historically along with good credit loss ratios (sub 2%) which compares well across the broader banking sector.
However, the loan book remains highly concentrated, with the top 20 obligors accounting for 93.2% of total loans as against 86.1% in 2023 and one single obligor limit (SOL) breach recorded, for which the Central Bank of Nigeria granted forbearance.
The higher concentration was driven by the naira devaluation during the year, which inflated the value of foreign currency exposures, ratings analysts stated.
While this temporarily heightened risk, the proportion of foreign currency loans has since declined to 26.7% as of 31 December 2024 as against 59.0% in 2023, which should help contain volatility going forward.
“We expect the bank’s risk profile to remain strong over the next 12 to 18 months, with the planned capital raise rectifying the SOL breach”. The bank’s funding structure and liquidity profile are considered sound, GCR said in its note.
Ratings analysts said Coronation Merchant Bank is primarily funded by customer deposits, which accounted for 67.9% of its funding base as of 31 May 2024 from 65.4% in December 2024.
However, due to the rate-sensitive nature of these deposits, the bank’s cost of funds increased significantly to 15.9% compared with 12.6% in 2023 following the monetary policy rate hikes during in 2024.
Positively, Coronation Merchant Bank’s deposit base is considered diversified relative to merchant banking peers, with the single largest and top twenty depositors accounting for 12.9% and 51.6% of total deposits respectively as of financial year-end 2024.
The bank’s liquidity is also rated strong, evidenced by the liquid asset coverage of customer deposits and wholesale funding, which registered at 107.9% and 11.3x respectively as of 31 December 2024. These metrics are expected to remain strong over the next 12-18 months, GCR ratings added.
“The stable outlook reflects our expectation that the bank’s GCR core capital ratio will range between 15.0% to 17.5% over the next 12-18 months, supported by internal capital generation as well as moderate risk weighted asset growth.
“Additionally, asset quality metrics are likely to remain above the industry average while the stable funding base and adequate liquidity position are expected to be sustained over the outlook period,” GCR Ratings said in the update. #GCR Upgrades Coronation Merchant Bank Ratings Outlook to Stable Sterling Plc Falls by 10% in Post Earnings Selloffs
