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Fitch Ratings has assigned Nigeria-based Guaranty Trust Holding Company Plc (GTCO) a Long-Term Issuer Default Rating (IDR) of ‘B’ with a stable outlook and a Viability Rating (VR) of ‘b’.
According to Fitch rating note, the group is predominantly deposit-funded reflecting its franchise strengths but the downside remains its heavy dollarised balance sheet and worsening stage 2 loans.
Established in 2021, GTCO is the bank holding company for Guaranty Trust Bank Limited, Fitch says its IDRs are driven by its intrinsic creditworthiness, as defined by its ‘b’ VR.
GTCO’s VR is assigned at the same level as the group which Fitch believes Holdco’s failure risk is substantially the same as that of the group as a whole.
“We take into consideration no double leverage and prudent capital and liquidity management by the Holdco as well as limited regulatory restrictions on GTB paying dividends or upstreaming liquidity to the Holdco and that both GTB and GTCO are incorporated in the same jurisdiction”.
It said GTCO’s viability rating considers its sensitivity -particularly asset quality metrics- to Nigeria’s volatile operating environment, as well as the group’s resilient business profile, consistently strong profitability, solid capitalisation and stable funding profile.
It said its business profile is underpinned by GTB’s strong banking franchise, well-established business model and management quality. GTCO is a listed Holdco with GTB/banking subsidiaries accounting for 99.5% of group assets, Fitch says the balance comes from a payments arm, Habari Pay.
Management intends to acquire asset management and a pension fund administration company, to be owned by Holdco, helping the group diversify revenue streams away from banking in Nigeria and increase cross-selling opportunities, according to ratings note.
Capitalisation is a relative strength with GTCO’s Fitch Core Capital printed at 27% at end-9M 2021, total capital adequacy ratio was 26% and tangible leverage ratio settled at 16% comparing favourably with its peers.
“We believe GTCO’s capital buffers are sufficient for both its business growth and potential acquisitions as well as meeting phased-in Basel III requirements”, Fitch stated.
It said the group capitalisation is supported by high pre-impairment profit which was 12% of average gross loans in 9M 2021 on an annualised basis.
At the same time, Fitch considers these levels of capital as a prudent safety cushion against currency moves, due to GTB’s dollarised balance sheet.
At the end of the first half of 2021, the group foreign-currency loans printed at 53%; has single borrower concentration and high stage 2 loans.
GTCO’s profitability for 9M 2021 is at the higher end among peers, despite weakening in 9M 2021 due to lower yields on securities accounting for 21% of total assets, and competition for corporate customers.
Its net interest margin reduced to 6.9% in 9M 2021 from 9.0% 2020, Fitch said in the report, adding that profitability is underpinned by consistently low loan impairment charges and very good cost control, as reflected by 43.9% cost-income ratio in 9M 2021
The holdings loan book forms a small proportion of total assets, accounting for 34% at end-9M 2021 but is concentrated by borrower and sector. The impaired (stage 3 under IFRS 9) loan ratio fell to 5.8% at end-9M 2021 from 6.4% at end-2020, partly due to recoveries and write-offs.
“We expect only modest asset-quality deterioration over the next 18 months, notwithstanding large Stage 2 loans which is at 15.1% of gross loans”, the ratings added.
It said restructured loans were 18% of gross loans at the end of the first half of 2021 and concentrated on two names, both classified as Stage 2 loans.
Fitch Ratings recognised that the group is predominantly deposit-funded reflecting franchise strengths. The rating note added that the Holdco funding mix continues to benefit from a large base of low-cost current and savings accounts, which formed 85% of total deposits at end-9M 2021.
“Naira liquidity is ample, supported by large cash placements at the Central Bank of Nigeria and an investment book in predominantly Nigerian government securities”.
GTCO loans to deposits ratio was a low 49% at end-9M 2021 while Fitch also noted that the group foreign currency liquidity is adequate despite the scarcity of hard currency in the Nigerian economy.
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