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GCR Ratings has affirmed Providus Bank Limited’s national scale long and short-term issuer ratings of BB+ (NG) and B (NG) respectively; with a positive outlook, according to a report.
The ratings of ProvidusBank Limited balance its stable funding and liquidity, moderate risk level, intermediate capitalisation, and limited competitive profile, GCR said in the rating note.
The emerging market rating agency said Providus Bank’s market share in terms of total assets and deposits is estimated at around 0.9% and 1.1% of the industry respectively, placing it at the lower end of the mid-sized banks in Nigeria.
Providus Bank, a lender with regional authorisation has a network of 12 branches and digital channels in Nigeria, according to the rating note in the last six years of operating in the Nigeria market.
GCR said the local deposit money bank’s competitive position remained constrained by its evolving brand franchise, short track record and limited local geographical diversification.
Meanwhile, the ratings firm said the bank’s capitalisation is considered intermediate and negative to the ratings, with the GCR core capital ratio declining by almost 300 basis points to 15.5% in the financial year 2021.
According to the rating note, the decline was underpinned by the growth in risk-weighted assets, driven by the bank’s need to meet the regulatory loan-to-deposit ratio.
“We, however, note that at this level, the bank’s capital adequacy ratio is above the regulatory threshold of 10% for its license category.
“Looking ahead, we anticipate that the capital ratio would remain within the intermediate range over the next 12-18 months as the bank continues to grow its risk assets, amidst a possible equity injection”, GCR said in the rating note released.
Providus Bank’s gross non-performing loans ratio stood at 2.9% in 2021 from 2.6% in the financial year 2020, which is below the regulatory tolerable limit of 5%, and compares favourably with the industry average of about 6%. The bank’s credit losses registered at 1% in 2021, according to GCR, which the rating firm considered an improvement from 3.2% previously.
“Our expectations for the next 12 months are that the NPL ratio and credit losses would remain within similar ranges.
On loan concentration, the firm considered Providus Bank obligor risk as moderately high; with the single and twenty largest exposures accounting for about 4% and 44% respectively of the loan book last year.
However, GCR analysts noted there was minimal exposure to market risk as trading gains – a market sensitive income- accounted for 4.7% of Providus Bank’s total operating revenue.
The ratings considered the bank’s funding and liquidity at an intermediate level, reflecting satisfactory liquid asset coverage of the funding base. The funding structure is broadly in line with peers, as customer deposits comprised 84% of the funding base in 2021, from 76% in 2020, according to the rating note.
Providus Bank grew its deposit book by 34% last year, which GCR analysts said reflected a good blend of low-cost savings and current accounts (58%) and term deposits (36%), with the cost of funds averaging 5.2%.
The emerging market ratings agency said although the matching of assets and liabilities maturities reflected a liquidity gap in the ‘less than three months’ band, the behavioural pattern seen in the industry over time indicates that a sizeable portion is usually rolled over at maturity.
It said the positive outlook reflects GCR’s expectations that ProvidusBank will sustain its current risk profile, and maintain sound liquidity while improving the GCR total capital ratio, noting the potential for additional capital injections.
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