By Dipo Olowookere
A notable rating agency, Fitch Ratings, has assigned a rating of ‘B-‘ to Jaiz Bank Plc, a foremost non-interest banking institution in Nigeria.
In a statement issued on Thursday, Fitch, apart from assigning the ‘B-‘ to the Long-Term Issuer Default Rating (IDR), also gave the lender a Stable Outlook and a Viability Rating (VR) of ‘b-‘.
The company explained that its decision to assign the ratings to Jaiz Bank because of “its standalone creditworthiness, as expressed by its VR of ‘b-‘.”
It also stated that the lender has demonstrated a “healthy profitability” as indicated by operating returns on risk-weighted assets (RWA) of 4.7 per cent in the first nine months of 2021.
“Healthy profitability is underpinned by a wide net financing margin that benefits from among the lowest cost of funding in the banking sector and has improved in recent years as a result of greater cost efficiency.
“Impairment charges continue to erode a high percentage of pre-impairment operating profit (43% in 9M21), despite recent improvement of the latter, reflecting pandemic-induced asset-quality weaknesses, and Fitch believes these will remain heightened in the medium term as the financing book seasons,” the statement added.
Fitch noted that in assessing Jaiz Bank’s ratings, it considered important differences between Islamic and conventional banks.
“These factors include closer analysis of regulatory oversight, disclosure, accounting standards and corporate governance. Islamic banks’ ratings do not express an opinion on the bank’s compliance with sharia. Fitch will assess non-compliance with sharia if it has credit implications,” it said.
The recent ratings, the agency said, reflect the concentration of the bank’s operations within Nigeria’s challenging operating environment, a small but evolving franchise, high credit concentrations, aggressive financing and balance-sheet growth that is expected to continue over the medium term, and financing-quality weaknesses.
The market share of Jaiz Bank in the banking industry in Nigeria is a mere 0.4 per cent but in the non-interest banking space, it controls about 78 per cent.
Its revenue diversification, according to Fitch, is particularly weak by domestic standards, with non-financing income representing just 8 per cent of operating income in the third quarter of this year and this is because the lender is restricted from some conventional banking activities.
However, Fitch warned that it could downgrade the bank’s rating if there is an erosion of capital buffers to levels close to or below its minimum regulatory requirements, which could result from significant asset-quality weakening and higher impairment charges leading to losses and/or aggressive growth that is not supported by further capital injections.
But it said the rating could be upgraded if there is “an improvement in the bank’s franchise while maintaining reasonable financial-profile metrics.”
Adedapo Adesanya