Banking
Fitch Affirms Sterling Bank at ‘B-‘
By Modupe Gbadeyanka
Sterling Bank Plc’s Long-Term Issuer Default Rating (IDR) has been affirmed by Fitch Ratings at ‘B-‘ as well as its National Long-Term Rating confirmed at ‘BBB-(nga)’ by the agency with the Outlook Stable.
A statement issued by the rating firm explained that Sterling Bank’s IDRs were driven by its standalone creditworthiness as defined by its Viability Rating (VR).
It noted that the VR is constrained by challenging operating conditions in Nigeria, the bank’s modest franchise and developing business model, weaknesses in its financial profile, and its higher risk appetite than peers.
These factors are counterbalanced by Sterling Bank’s coherent strategy, especially its business transformation initiatives, and strong management team.
Sterling Bank’s financial profile is characterised by high credit concentrations, variable earnings and profitability, modest capital buffers based on its risk profile, and its structurally weak funding and liquidity profile.
The lender has high exposure to the oil and gas sector, representing 43.2 percent of gross loans at end-9M17, mainly to mid-sized corporates.
Around 38 percent of the bank’s loans at end-9M17 were in foreign currency, exposing it to currency volatility.
Sterling Bank’s impaired loans ratio (based on IFRS) increased to 3.5% at end-9M17 from 1.7% at end-2016, arising mainly from the troubled oil and gas sector.
Based on prudential requirements (all loans that are 90 days overdue), Sterling Bank’s NPL ratio was 6.1% at end-9M17.
Fitch said it believes that the bank’s asset quality remains highly sensitive to loan concentrations by industry and obligor despite its impaired loans ratio and NPL ratio being below sector averages.
There is inherent instability in Sterling Bank’s funding base and 40% of the bank’s customer deposits are from corporates, which, in our view, are price-sensitive and less stable. These deposits are also predominately short-term, exposing the bank to significant structural asset-liability maturity mismatches. Additionally, the deposit base is highly concentrated, the rating company said.
It added that Sterling Bank is addressing funding and liquidity risks by raising market funding, demonstrating good access to borrowed funds and debt securities issuance.
“Positively, we also note that the bank has successfully attracted more stable retail deposits, including strong growth in ‘non-interest-bearing’ deposits (albeit from a low base). With the rollout of the new strategy and franchise development, we expect structural weaknesses in the customer deposit base to be resolved over time.
“We believe the bank’s capital buffers are low (Fitch Core Capital Ratio of 13.2% at end-9M17), particularly due to its sensitivity to concentration risks,” it said.
Sterling Bank reported a Basel II total capital adequacy ratio of 11.4% at end-9M17, a modest buffer against its regulatory minimum of 10%.
In addition to higher retained earnings and by repositioning its balance sheet, the bank is expected to raise subordinated debt in the domestic market (which counts towards Tier 2 regulatory capital) to improve capital buffers.
“In the medium term, we expect Sterling Bank’s prospects to improve as the franchise strengthens with the expansion of its retail/SME and ‘non-interest-bearing’ lines and business reorganisation,” Fitch disclosed.
Sterling Bank’s National Ratings reflect Fitch’s opinion of its standalone creditworthiness relative to the best credits in the country. The National Long- and Short-Term Ratings of ‘BBB-(nga)’ and ‘F3(nga)’ take into account Sterling Bank’s overall risk profile relative to other Nigerian banks, including its limited franchise and weak financial metrics.
SUPPORT RATING AND SUPPORT RATING FLOOR
Fitch believes that sovereign support to Nigerian banks cannot be relied on given Nigeria’s (B+/Negative) weak ability to provide support, particularly in foreign currency. In addition, there are no clear messages from the authorities regarding their willingness to support the banking system. Therefore, the Support Rating Floor of all Nigerian banks is ‘No Floor’ and all Support Ratings are ‘5’. This reflects our view that senior creditors cannot rely on receiving full and timely extraordinary support from the Nigerian sovereign if any of the banks become non-viable.
RATING SENSITIVITIES
IDRS, VIABILITY RATING AND NATIONAL RATINGS
The bank’s IDRs are sensitive to rating action on its VR. This would most likely be triggered by material deterioration in asset quality that would add further pressure to Sterling’s already weak capital position. Any pronounced instability in Sterling’s funding profile could also put negative pressure on the bank’s VR.
By Aduragbemi Omiyale
The Central Bank of Nigeria (CBN) has reaffirmed that the old and new Naira notes will continue to be used for financial transactions in the country beyond December 31, 2024.
There had been rumours that the old and redesigned N200, N500, and N1,000 banknotes would no longer be legal tender from Wednesday, January 1, 2025, because the central bank would phase out the notes in compliance with a Supreme Court judgement of November 29, 2023.
But the apex bank, in a statement signed by its acting Director of Corporate Communications, Mrs Hakama Ali, on Friday, clarified that the apex court’s judgement being cited did not authorise the bank to phase out the banknotes by the end of this year.
According to her, the court allowed the CBN to leave the old and new notes to be used concurrently until it decides to gradually phase out the former.
The central bank’s spokesperson urged members of the public to disregard claims suggesting the old series of these denominations would cease to be valid at the end of this year.
She urged them to continue to accept all Naira notes for daily transactions, encouraging banks to also adopt alternative payment methods such as electronic channels to reduce the pressure on physical cash usage.
“The Central Bank of Nigeria (CBN) has observed the misinformation regarding the validity of the old N1000, N500, and N200 banknotes currently in circulation.
“In line with the bank’s previous clarifications and to offer further assurance, the CBN wishes to reiterate that the subsisting Supreme Court ruling granted on November 29, 2023, permits the concurrent circulation of all versions of the N1000, N500, and N200 denominations of the Naira indefinitely.
“For the avoidance of doubt, all versions of the naira, including the old and new designs of N1000, N500, and N200 denominations, as well as the commemorative and previous designs of the N100 denomination, remain valid and continue to be legal tender without any deadlines,” the statement noted.
By Adedapo Adesanya
Access Bank Plc, the banking subsidiary of Access Holdings Plc, has entered into a binding agreement with South African-based Bidvest Group Limited for the acquisition of 100 per cent equity stake in Bidvest Bank Limited.
The deal for the 24-year-old South African lender is due to be completed in the second half of 2025, upon regulatory approval.
This shows Access Bank’s further expansion plans in line with goals set by its late founder, Mr Herbert Wigwe.
The agreement to acquire 100 percent stake in Bidvest Bank reflects Access Bank’s commitment to strengthening its footprint in South Africa and consolidating on its position as the continent’s gateway to global markets as it seeks to optimise the benefits of recent acquisitions and accelerate its transition towards a greater focus on efficiencies.
Bidvest Bank, founded in 2000 is a niche and profitable South African financial institution providing a diverse range of services, including corporate and business banking solutions and diverse retail banking products.
As of its year ended June 2024, Bidvest Bank reported total assets equivalent of $665million and audited profit before tax of $20million.
Upon conclusion of this acquisition, Bidvest Bank will be merged with the bank’s existing South African subsidiary to create an enlarged platform to anchor the regional growth strategy for the SADC region.
This is coming just as the bank opened a new branch in Malta as part of efforts to focus on international trade finance after obtaining a banking licence from the European Central Bank (ECB) and the Malta Financial Services Authority (MFSA).
Access Bank said the licence marks a transformative milestone in bolstering Europe-Africa trade flows.
The Maltese branch was established by Access Bank UK Limited, the subsidiary of Access Bank Plc, which is also the subsidiary of Access Holdings Plc, which is listed on the Nigerian Exchange (NGX) Limited.
By Modupe Gbadeyanka
To strengthen Europe-Africa trade ties, Access Bank has opened a new branch in Malta. It will focus on international trade finance, employing approximately 30 people in its initial phase, with plans for controlled expansion over time.
It was learned that this Maltese branch was established by Access Bank UK Limited, the subsidiary of Access Bank Plc, which is also the subsidiary of Access Holdings Plc, which is listed on the Nigerian Exchange (NGX) Limited.
Access Bank Malta Limited commenced operations after obtaining a banking licence from the European Central Bank (ECB) and the Malta Financial Services Authority (MFSA).
Access Bank said the licence marks a transformative milestone in bolstering Europe-Africa trade flows.
Malta, a renowned international financial centre, and a gateway between the two continents, is strategically positioned to play a pivotal role in advancing commerce and fostering economic partnerships.
This strategic expansion into Malta enables The Access Bank UK Limited to leverage growing trade opportunities between Europe and Africa.
It underscores the organisation’s commitment to driving global trade, financial integration, and supporting businesses across these regions.
“By establishing operations in Malta, we will gain a foothold in a market that bridges European and North African economies, moving us one step closer to our goal of becoming Africa’s Gateway to the World.
“It further enhances our bank’s capacity to support clients with innovative solutions tailored to cross-border trade and investment opportunities,” the chief executive of Access Bank, Mr Roosevelt Ogbonna, stated.
“Europe has emerged as Africa’s leading trading partner, driven by initiatives such as the Economic Partnership Agreements between the EU and African regions and the African Continental Free Trade Area (AfCFTA).
“With Europe-Africa economic relations entering a new phase, The Access Bank Malta Limited is ideally positioned to deepen trade and meet the financing and banking needs of our clients in these expanding markets,” the chief executive of Access Bank UK, Mr Jamie Simmonds, commented.
Also speaking, the chief executive of Access Bank Malta, Renald Theuma, said, “Malta is uniquely positioned as a bridge between Europe and Africa, making it an ideal location for our subsidiary. This move allows The Access Bank Malta Limited to engage more closely with customers in Europe and deliver tailored financial solutions that drive growth and connectivity across both continents.”
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