Stanbic IBTC Holds 5% of Nigerian Banking Sector Assets
Tier-2 financial service group, Stanbic IBTC Bank Plc controls about 5 percent of Nigerian banking sector assets, according to the latest rating note amidst a slowdown in profitability. Its financials shows that its parent company, Standard Bank Group, has maintained a stable shareholding of 67.5%.
The banking arm which accounts for more than 99% of the Stanbic IBTC Holdings has seen pressures on earnings and performance has been slowdown amidst industry rivalry. There are also efforts to clean up its balance sheet with 1.5% write-offs in the loan book in 2021.
Trading revenue was down 75% at the time regulatory costs spike. These kept profit downward though its shareholders’ fund was stable. In the report, Fitch Ratings said it has affirmed the National Long-Term Ratings of Nigeria-based Stanbic IBTC Holdings PLC and its 99.9% owned subsidiary, Stanbic IBTC Bank PLC, at ‘AAA (nga)’.
It noted that the National Ratings of Stanbic IBTC and Stanbic IBTC Bank are based on potential support from their ultimate parent, South Africa’s Standard Bank Group Limited, which owns 67.5% of Stanbic IBTC. It was revealed that the ratings reflect Standard Bank Group’s (SBG’s) willingness and ability to support Stanbic IBTC and Stanbic IBTC Bank if required.
Fitch’s view of SBG’s willingness to support considers Stanbic IBTC’s strategic importance to SBG as the holding company for its leading corporate and investment banking and wealth businesses in Nigeria – a key growth market for SBG’s Africa Regions strategy– – and for Stanbic IBTC Bank, an integral part of its Nigerian operations.
“Our view of support also considers SBG’s controlling ownership of Stanbic IBTC, high risk-management, operations and strategy integration, shared branding, and Stanbic IBTC’s modest 7.5% contribution to SBG’s net income in 2021.
Stanbic IBTC Bank, a local universal bank with around 5% of banking sector assets and formed 95% of Stanbic IBTC’s consolidated assets in the financial year 2021. The rating note however revealed downside risks to the bank operating conditions including rising global risks that will weaken domestic operating conditions.
Rising to 17.71% in May, from 16.8% in April 2022, the headline inflation rate is expected to remain stubbornly high, posing downside risks to our real GDP growth forecasts of 3.1% in 2022 and 3.3% in 2023. However, Fitch stated that downside risks are somewhat mitigated by strong oil prices, which should also underpin growth in non-oil sectors and banks’ asset quality.
Stanbic IBTC’s impaired loan ratio fell to 2.2% at end-2021 from 4% last year, given sizeable write-offs which was 1.5% of average loans in 2021 and a 44% loan growth rate. READ: Standard Bank Rating Slides to Speculative with Negative Outlook
The ratio was stable at the end of Q1-2022 and Fitch expects it to remain below 3% in 2022, supported by high oil prices and zero Covid-19 restructured loans at the end of the first quarter of 2022.
Earnings Hit by Muted Trading Activities: Stanbic IBTC’s operating profit to risk-weighted assets (RWA) ratio fell to 4% in 2021 from 7% in 2021 largely due to a significant decline in trading revenue (down 75%) and increased regulatory-induced costs.
Despite earnings pressures, profitability was supported by Stanbic IBTC’s diversified business model, underpinned by net fees and commissions which jumped by 16% in 2021, and strong recoveries.
Stanbic IBTC’s Fitch core capital ratio decreased to 21.9% at the end of the first quarter of 2022, from 26.7% in 2020 mainly due to high RWA growth but remains strong. Its total capital adequacy ratio settled at 19.5% at the end of the first quarter of 2022 provides a solid buffer over its 11% regulatory requirement under Basel III.
Also, Stanbic IBTC’s loans to customer deposits ratio closed at 84% at the end of the first quarter of 2022. This is considered to be higher than peers due to Stanbic IBTC Bank’s smaller retail franchise and higher reliance on wholesale funding.
However, the Bank’s funding profile is stable, according to the rating note, with 66% of deposits in the form of current and savings accounts. Liquidity buffers are sufficient in naira and foreign currency, according to the rating note. #Stanbic IBTC Holds 5% of Nigerian Banking Sector Assets
