Deconstructing Stanbic IBTC’s Triple A Fitch Rating

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MD, Stanbic IBTC Bank, Yinka Sanni

Fitch Ratings recently assigned a triple A rating and a stable outlook to Stanbic IBTC. Kunle Aderinokun, in this report, examined the rating and its implications for the financial institution, the market and the economy

The media has been awash lately with the ratings of the country’s financial institutions by Fitch Ratings, the global leader in credit ratings and research. Such regular ratings provide an idea of the credit worthiness of the institutions so rated. The ratings are simply a message to investors that the rated institution is able or unable to meet its financial obligations. In effect, the rating tells an investor it believes his money will be safer if put in one institution as against the other. So, for instance, an institution rated A – B will be considered a safer bet than one rated C– D.

The typical ratings scale ranges from AAA, AA, A, BBB, BB, B, to CCC, CC, C and D, with modifiers such as +/- added in some instance. The triple A is the best-in-class while the D signifies a red flag that investors must avoid. Fitch rated the financial institutions, among other criteria, in terms of their ability to meet both their short and long-term obligations such as interests on debt instruments, preferred dividends, repayment of principal, insurance claims or counterparty obligations.

Of particular interest in the ratings is Stanbic IBTC’s triple A, F1+ ratings, the highest rating possible. According to Fitch Ratings, “AAA is the highest credit quality. They are assigned only in cases of exceptionally strong capacity for payment of financial commitments. This capacity is highly unlikely to be adversely affected by foreseeable events.” The triple A “denotes the lowest expectation of default risk” while the F1+ “indicates the strongest intrinsic capacity for timely payment of financial commitments.” Other top banks have also received good ratings ranging from A+ to BBB+. Overall, the Nigerian banking industry remains strong and liquid, a position affirmed by the Central Bank of Nigeria (CBN).

In arriving at these ratings, rating agencies such as Fitch typically consider industry, regulatory, fiscal, environmental, economic, and sometimes political risks. Other criteria considered were the core fundamentals of the rated institutions. So, for instance, such consideration as quality of management, quality of decision making, corporate governance and stability strongly influence the ratings. Fitch said it took account of the strong parental support from Standard Bank Group – an added advantage – which has a majority stake in Stanbic IBTC Holdings Plc, as the group provides support in such areas as staff training, provision of information technology upgrades and best practice processes as well as strong corporate governance practices, in arriving at the triple A rating.

The rating is no doubt a reflection of Stanbic IBTC’s strength, strong leadership, liquidity and the firm support of its parent company, the Standard Bank Group, which had been in operation for 153 years. Indeed, Stanbic IBTC was given a similar rating last year after a thorough examination of its credit process and financial results. The institution’s diversified loan portfolio was reviewed with its impact on various sectors of the economy taken into account. Among economic sectors impacted by the financial institution are agriculture, construction, real estate and infrastructure, electricity and other utilities, consumer credit, manufacturing, oil and gas and general commerce. Others are downstream oil and gas, transportation and communications.

In its rating report, Fitch also reviewed the capital adequacy of Stanbic IBTC in compliance with regulations and concluded that it was adequately capitalised with capital adequacy ratio above the regulatory requirement. The liquidity position of Stanbic IBTC was reviewed and its ability to meet foreign currency obligations as they fall due examined. The group was certified as having adequate liquidity to meet both its short and long term obligations. In essence, what all this means is that Stanbic IBTC is a well-run, financially strong institution that could be trusted to pay its creditors interests on borrowed money and the principal when such falls due.

Stanbic IBTC remains a strong brand despite the harsh operating environment. It has continued to show leadership in several sectors of the economy as it keys into the diversification drive of government by bringing expertise, experience and innovative solutions to businesses and individuals, which is impacting its balance sheet positively. The institution recently restructured its management team to bring in fresh energy and thinking into its operations. And this is already yielding dividends.

Over the past few years, it has consummated some very big ticket financing projects to burnish its financing credentials and leadership in the corporate and investment banking space. In the real estate sector, Stanbic IBTC is instrumental in birthing the recently commissioned Maryland Mall, the Festival Mall in Festac Town; Ikeja City Mall; Circle Mall, Jakande, Lekki, all in Lagos; Delta City Mall, Warri; and Polo Park Mall, Enugu. It is also a major financier in Oando’s Wing Tower, among others.

In the logistic sector, its vehicle and assets financing unit continues to actualise solid deals in both private and public sector. The bank was a key player in the transformation of the otherwise chaotic transportation system in Lagos State through its financing of the acquisition of buses under the Bus Rapid Transit (BRT) scheme of the Lagos State government. Also in the sector, it has subsisting MoUs with major auto dealers like Coscharis, Globe Motors and PAN to provide finance for vehicle acquisition by customers.

Its investments in agriculture cut across the sector’s value chain. It currently offers a wide range of agriculture business solutions which comprise a more responsive processing system for agriculture proposals presented to Stanbic IBTC Bank, improved technical support through precision farming technologies, geographical information system mapping and agronomy services, better and more pragmatic approach to risk profiling of clients supported by a deeper understanding of their business. Stanbic IBTC believes agriculture holds great promise and its stated objective is to play a transformative role in that sector, in partnership with other organizations.

It also continues to grow its retail banking portfolio through strategic expansion of its retail footprint. Last year alone, it opened a number of retail outlets to tap into growing opportunities in markets across Lagos, such as in the Computer Village, Ikeja; Orile Market and Satellite Town. And it is a strong player in the small and medium scale enterprise subsector, where it is providing both financing and advisory services to the sector players. Products such as SME Quick Loan and BizDirect, its virtual business centre to support SMEs, are some of its offerings in that subsector. As part of its support for SMEs, Stanbic IBTC regularly organises seminars for SME operators. Among other benefits, the seminars seek to equip SME operators with financial, marketing, and management skills that they can readily deploy to transform their businesses and grow their bottom lines.

No doubt, Stanbic IBTC’s smart play across key sectors continues to impact positively its cashflow situation and liquidity. Its liquidity position is further strengthened by its market leadership, through its subsidiaries, in Pensions, Asset Management, Custodian Services, Stockbrokerage and Corporate Banking. The pension arm is the leading pension fund administrator in the country, with over 1.4 million customers, a major milestone under the contributory pension scheme. The custodian business was adjudged the best in the country in 2016, the sixth time in a row it was so adjudged, by a global body while Stanbic IBTC Stockbrokers won the last two Nigerian Stock Exchange CEO Award as the best stockbrokerage firm in the country.

Perhaps the critical importance of the Fitch rating is that it attests to the health of the banks, making it much easier for them to raise debt capital for their expansion drives. With a triple A, F1+ rating, Stanbic IBTC has a higher chance than other financial institutions of attracting quality investment. Stanbic IBTC’s proposed N30 bond issue, for instance, has a better chance of success with the ratings.

The ratings couldn’t have come at a better time for the financial services industry. The Treasury Single Account, forex scarcity, inflationary pressures and fuel price hike have continued to take a toll on purchasing power, and coupled with the threat of recession, meant there is less business and revenue for the industry players. Dwindling profit levels have necessitated the need for the industry to raise fresh capital. With the general apathy in the capital market, raising capital via the stock exchange remains a daunting task, which leaves debt as the viable option.

The CBN maintains that the banking industry is healthy. Indeed, with these ratings it may be hard to argue against that.