Globus Bank Asset Metrics Likely to Remain Better than Industry’s Average – GCR
GCR Ratings has affirmed Globus Bank Limited’s national scale long and short-term ratings of BBB-(NG) and A3 (NG) respectively, with a stable outlook. The rating agency said it expects the bank’s asset metrics to remain better than industry’s average having recorded zero non-performing loan up till July, 2024.
According to the emerging market rating agency, Globus Bank Limited’s ratings reflects its modest franchise, well-managed risk profile, stable funding structure and good liquidity.
The bank’s balance sheet size reached N1.4 trillion or $864.0 million as of 31 July 2024, reflecting a three-year annual growth rate of 64.5% and a 48.7% growth over the position as at 31 December 2023, GCR said.
The rating firm stated that the bank’s growth is primarily driven by wider branch networks and the adoption of digital innovations, which enhance customer reach.
Nonetheless, the bank’s competitive position is constrained by its small share of the broader industry’s resources at less than 1%.
“We view positively Globus Bank’s relatively stable operating revenues, supported by the dominance of net interest income that accounted for 74.6% in 2023 while the contribution of volatile, market-sensitive income remained lower than peers”.
GCR said in its rating noted that the bank’s three-year (2021-2023) average cost-to-income ratio of 48.1% continues to show a moderating trend reflecting improved operational efficiency.
The rating agency believes that Globus Bank’s ability to expand and defend its market share particularly in view of a mass recapitalisation of the Nigerian banking sector, while maintaining good revenues, would impact assessment of the bank’s competitive position.
The emerging market ratings agency also assessed Globus Bank’s capitalisation at an intermediate level on the back of strong shareholders’ support. Over the last two years, existing shareholders injected a total of N26.6 billion into the bank through rights issuance, split into N10.6 billion in 2023 and N16 billion in 2024.
This, as well as good earnings accretion, supported the bank’s aggressive growth in the last four years, registering the GCR core capital ratio at 18.8% as of 31 July 2024 from a high of 43.6% in 2020.
The N16 billion raised by shareholders in 2024 are currently held as deposits for shares, awaiting approval from the Central Bank of Nigeria.
The rating note said Globus Bank has outlined plans to raise additional capital in the range of N25 billion to N50 billion by December 2024 through a combination of rights issuance and private placements.
Should the capital raise be successful, the GCR core capital ratio could register between 19% and 22.5% over the next 12 months, the rating note stated.
Globus Bank’s risk profile is a positive rating factor, the rating note added. The bank’s gross loans grew by 45.7% to N350.5 billion or $389.8 million as at 31 December 2023 and further to N521.2 billion or $325.7 million as of 31 July 2024.
Despite this substantial growth, no non-performing loan was reported, reflecting prudent underwriting standards and stringent credit monitoring.
However, the credit loss ratio inched up to 2.1% from 1.5% in 2022, driven by higher provisions in response to the prevailing weak macroeconomic climate and growth in the loan book.
GCR noted that counterparty risk remains moderate, with the top twenty obligors accounting for 43.1%, up from 38.7% in 2022, of the loan portfolio as of 31 December 2023.
Globus Bank is exposed to currency risks through its foreign currency (FCY) loans which accounted for 19.5% – down from 22.0% in 2022- of gross loans as of 31 December 2023.
Analysts however noted that the exposure is well below the industry’s average of over 45%.
“We recognise that currency risks are mitigated by matching these foreign currency credits predominantly to obligors with foreign currency receivables.
“Over the next 12-18 months, we expect some pressure on asset quality ratios across the banking sector due to macroeconomic headwinds (including the high interest rates); however, we do not foresee any significant deterioration in Globus Bank’s loan book in the short term”.
GCR said its assessment of funding and liquidity is positive to the ratings underpinned by a stable funding base and a liquid balance sheet.
Globus Bank’s activities are funded by core customer deposits, which accounted for 98.3% – up from 87.9% in 2022 – of the total funding base as of 31 December 2023.
Customer deposits rose by 76.6% to N546.8 billion or $614.8 million as of 31 December 2023 and further to N751. 1 billion or $469.3 million as of 31 July 2024, supported by the strategic deployment of technology and the expansion of its branch network.
The rating note explained that he deposit mix is skewed towards interest rate sensitive term deposits, which constituted 56.7% of total customer deposits.
However, despite this trend as well as the prevalent high interest-rate environment, interest expense as a percentage of the average funding base at 5.0% as of 31 July 2024 compared favourably with peers.
GCR said it views the bank’s depositor concentration to be relatively low, as the twenty largest depositors accounted for 27.7% of total customer deposits as of 31 December 2023.
Liquidity coverage remains adequate; GCR liquid assets coverage of customer deposits registered at 42.3% as of 31 December 2023. Globus bank continues to maintain a liquidity ratio above the regulatory minimum of 30%.
“We expect Globus Bank’s funding and liquidity metrics to remain at acceptable levels over the next 12-18 months”, GCR said in the note.
Outlook statement
The stable outlook reflects expectation that Globus Bank will maintain a GCR Core Capital Ratio in the range of 19%-22.5% over the rating horizon, supported by a planned equity capital raise and increased earnings accretion.
GCR said the bank’s asset quality metrics are likely to remain better than the industry’s average, while the funding structure and liquidity position remain stable over the next 12-18 months. #Globus Bank Asset Metrics Likely to Remain Better than Industry’s Average – GCR
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