(The following statement was released by the rating agency)
Fitch Ratings-London-November 04:
Fitch Ratings has affirmed Sterling Bank Plc's Long-Term Foreign-Currency Issuer
Default Rating (IDR) at 'B-'.The Outlook is Stable. A full list of rating
actions is at the end of this rating action commentary.
Key Rating Drivers
IDRS, VR AND NATIONAL RATINGS
The IDRs of Sterling are driven by its standalone creditworthiness, as expressed
by its VR. Sterling's VR is conditioned by Nigeria's operating environment, with
weak macroeconomic conditions, policy uncertainty and regulatory intervention
influencing the bank's standalone creditworthiness.
Sterling's VR reflects the bank's modest franchise, which in our view has
adverse impacts on the bank's earnings generation and funding profile. It also
reflects weak and vulnerable capital buffers, which are well below domestic
peers'. The VR also takes into account the bank's deteriorated loan-quality
metrics and coherent strategy.
Sterling's modest franchise is illustrated by the bank's small market share of
domestic credit of about 4%. This is partly due to Sterling being a relatively
young bank, formed out of the merger of five Nigerian banks in 2006. In our view
the franchise acts as a constraint on Sterling's financial metrics, particularly
earnings, funding and liquidity. Positively, we view management succession as
smooth and believe that the bank has a coherent and stable strategy focusing on
digital banking.
Sterling's core asset-quality metrics have deteriorated significantly, with an
impaired loans ratio of 8.7% of gross loans at end-June 2019, up from 5.8% at
end-2017, as migrations to the stage 3 IFRS 9 category were not offset by the
write-offs incurred during the same period. The ratio is now at the sector
average for Fitch-rated banks. Sterling's loan loss reserve coverage of stage 3
loans has deteriorated as rising impaired loans have not been accompanied by new
loan loss reserves. This exposes the bank's capital to sudden deterioration in
asset quality.
Sterling's capital ratios are the lowest of all rated Nigerian peers', with a
Fitch Core Capital (FCC) ratio of 13.7% at end-1H19. We view the bank's FCC
ratio as weak in light of the operating environment and elevated loan
concentrations, both by single obligor and sector. We believe the bank's capital
buffers are vulnerable to deterioration in asset quality metrics as a result of
a high share of unreserved impaired loans (35% of FCC). Low capital ratios
reflect, in our view, only adequate profitability but also a lower regulatory
requirement of 10% for the bank's capital adequacy ratio (CAR). Sterling's CAR
stood well above the regulatory requirement, which we expect to continue given
the absence of dividend payments and the bank's modest growth plans.
We view Sterling's funding base as more volatile than peers' owing to a smaller
proportion of low-cost retail deposits weighing on both the bank's cost of
funding and the stability of its funding base. Positively, the bank's strategy
for attracting low-cost current and savings account (CASA) deposits is gaining
momentum as the share of CASA in the bank' customer deposit base rose to 63% at
end-1H19 from 46% at end-2017, resulting in lower deposit concentration.
We believe Sterling's liquidity buffers are adequate for the operating
environment and the bank's funding base. Liquid assets (cash balances less
mandatory reserves with the central bank, net interbank placement and investment
securities) covered customer deposits by a comfortable 38% at end-1H19. We also
view the foreign-currency (FC) liquidity buffers of Sterling as adequate given
its limited upcoming FC obligations and the performance of its FC loan book.
Sterling's National Ratings reflect its creditworthiness relative to other
Nigerian issuers.
SUPPORT RATING AND SUPPORT RATING FLOOR
Fitch believes that sovereign support to Nigerian banks cannot be relied upon
given Nigeria's weak ability to provide support, particularly in FC. Therefore,
the Support Rating (SR) and Support Rating Floor (SRF) are '5' and 'No Floor',
respectively. 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 AND NATIONAL RATINGS
Sterling's IDRs are sensitive to a change in the bank's VR. A downgrade of the
IDRs may result from a significant erosion of the bank's low capital ratios due
to the materialisation of asset quality risks. However, this is not our
base-case scenario as we believe Sterling's asset quality will slightly improve
or stabilise within the next 18 months.
Positive rating action is unlikely in the short-term given the challenging
operating environment, and Sterling's modest franchise and the structural
challenges this creates with respect to performance. In the future, successful
implementation of strategy, resulting in expansion of the franchise and a
structural improvement in financial metrics could drive an upgrade.
Sterling's National Ratings are sensitive to a change in the bank's
creditworthiness relative to other Nigerian bank issuers'.
SUPPORT RATING AND SUPPORT RATING FLOOR
The Support Rating and Support Rating Floor are sensitive to a change in
assumptions around the propensity or ability of the sovereign to provide timely
support to the bank. Given Nigeria's weak sovereign ratings, this is not our
base case.
ESG Considerations
The highest level of environmental, social and governance (ESG) credit relevance
for Sterling is a score of 3. This means ESG issues are credit-neutral or have
only a minimal impact on the entity, either due to their nature or to the way in
which they are being managed by the entity.
Sterling Bank Plc; Long Term Issuer Default Rating; Affirmed; B-; RO:Sta
; Short Term Issuer Default Rating; Affirmed; B
; National Long Term Rating; Affirmed; BBB-(nga)
; National Short Term Rating; Affirmed; F3(nga)
; Viability Rating; Affirmed; b-
; Support Rating; Affirmed; 5
; Support Rating Floor; Affirmed; NF
Contacts:
Primary Rating Analyst
Vincent Martin,
Director
+44 20 3530 1828
Fitch Ratings Ltd
30 North Colonnade, Canary Wharf
London E14 5GN
Secondary Rating Analyst
Ramy Habibi Alaoui,
Analyst
+971 4 424 1208
Committee Chairperson
Christian Scarafia,
Senior Director
+44 20 3530 1012
Media Relations: Louisa Williams, London, Tel: +44 20 3530 2452, Email:
louisa.williams@thefitchgroup.com.
Additional information is available on www.fitchratings.com
Applicable Criteria
Bank Rating Criteria (pub. 12 Oct 2018)
https://www.fitchratings.com/site/re/10044408
National Scale Ratings Criteria (pub. 18 Jul 2018)
https://www.fitchratings.com/site/re/10038626
Short-Term Ratings Criteria (pub. 02 May 2019)
https://www.fitchratings.com/site/re/10073011
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/site/dodd-frank-disclosure/10100332
Solicitation Status
https://www.fitchratings.com/site/pr/10100332#solicitation
Endorsement Policy
https://www.fitchratings.com/regulatory
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS.
PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK:
HTTPS://WWW.FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING
DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S
PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND
METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF
CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE,
AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF
CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE
AVAILABLE AT HTTPS://WWW.FITCHRATINGS.COM/SITE/REGULATORY. FITCH MAY HAVE
PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD
PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED
IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS
ISSUER ON THE FITCH WEBSITE.
Copyright © 2019 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its
subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824,
(212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or
in part is prohibited except by permission. All rights reserved. In issuing and
maintaining its ratings and in making other reports (including forecast
information), Fitch relies on factual information it receives from issuers and
underwriters and from other sources Fitch believes to be credible. Fitch
conducts a reasonable investigation of the factual information relied upon by it
in accordance with its ratings methodology, and obtains reasonable verification
of that information from independent sources, to the extent such sources are
available for a given security or in a given jurisdiction. The manner of Fitch's
factual investigation and the scope of the third-party verification it obtains
will vary depending on the nature of the rated security and its issuer, the
requirements and practices in the jurisdiction in which the rated security is
offered and sold and/or the issuer is located, the availability and nature of
relevant public information, access to the management of the issuer and its
advisers, the availability of pre-existing third-party verifications such as
audit reports, agreed-upon procedures letters, appraisals, actuarial reports,
engineering reports, legal opinions and other reports provided by third parties,
the availability of independent and competent third- party verification sources
with respect to the particular security or in the particular jurisdiction of the
issuer, and a variety of other factors. Users of Fitch's ratings and reports
should understand that neither an enhanced factual investigation nor any
third-party verification can ensure that all of the information Fitch relies on
in connection with a rating or a report will be accurate and complete.
Ultimately, the issuer and its advisers are responsible for the accuracy of the
information they provide to Fitch and to the market in offering documents and
other reports. In issuing its ratings and its reports, Fitch must rely on the
work of experts, including independent auditors with respect to financial
statements and attorneys with respect to legal and tax matters. Further, ratings
and forecasts of financial and other information are inherently forward-looking
and embody assumptions and predictions about future events that by their nature
cannot be verified as facts. As a result, despite any verification of current
facts, ratings and forecasts can be affected by future events or conditions that
were not anticipated at the time a rating or forecast was issued or affirmed.
The information in this report is provided "as is" without any representation or
warranty of any kind, and Fitch does not represent or warrant that the report or
any of its contents will meet any of the requirements of a recipient of the
report. A Fitch rating is an opinion as to the creditworthiness of a security.
This opinion and reports made by Fitch are based on established criteria and
methodologies that Fitch is continuously evaluating and updating. Therefore,
ratings and reports are the collective work product of Fitch and no individual,
or group of individuals, is solely responsible for a rating or a report. The
rating does not address the risk of loss due to risks other than credit risk,
unless such risk is specifically mentioned. Fitch is not engaged in the offer or
sale of any security. All Fitch reports have shared authorship. Individuals
identified in a Fitch report were involved in, but are not solely responsible
for, the opinions stated therein. The individuals are named for contact purposes
only. A report providing a Fitch rating is neither a prospectus nor a substitute
for the information assembled, verified and presented to investors by the issuer
and its agents in connection with the sale of the securities. Ratings may be
changed or withdrawn at any time for any reason in the sole discretion of Fitch.
Fitch does not provide investment advice of any sort. Ratings are not a
recommendation to buy, sell, or hold any security. Ratings do not comment on the
adequacy of market price, the suitability of any security for a particular
investor, or the tax-exempt nature or taxability of payments made in respect to
any security. Fitch receives fees from issuers, insurers, guarantors, other
obligors, and underwriters for rating securities. Such fees generally vary from
US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In
certain cases, Fitch will rate all or a number of issues issued by a particular
issuer, or insured or guaranteed by a particular insurer or guarantor, for a
single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000
(or the applicable currency equivalent). The assignment, publication, or
dissemination of a rating by Fitch shall not constitute a consent by Fitch to
use its name as an expert in connection with any registration statement filed
under the United States securities laws, the Financial Services and Markets Act
of 2000 of the United Kingdom, or the securities laws of any particular
jurisdiction. Due to the relative efficiency of electronic publishing and
distribution, Fitch research may be available to electronic subscribers up to
three days earlier than to print subscribers.
For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd
holds an Australian financial services license (AFS license no. 337123) which
authorizes it to provide credit ratings to wholesale clients only. Credit
ratings information published by Fitch is not intended to be used by persons who
are retail clients within the meaning of the Corporations Act 2001
Fitch Ratings, Inc. is registered with the U.S. Securities and Exchange
Commission as a Nationally Recognized Statistical Rating Organization (the
"NRSRO"). While certain of the NRSRO's credit rating subsidiaries are listed on
Item 3 of Form NRSRO and as such are authorized to issue credit ratings on
behalf of the NRSRO (see https://www.fitchratings.com/site/regulatory), other
credit rating subsidiaries are not listed on Form NRSRO (the "non-NRSROs") and
therefore credit ratings issued by those subsidiaries are not issued on behalf
of the NRSRO. However, non-NRSRO personnel may participate in determining credit
ratings issued by or on behalf of the NRSRO.