GCR affirms Jaiz Bank Ratings, Upgrades Outlook to Positive
Lagos, 30 September 2024 – GCR Ratings (GCR) has affirmed Jaiz Bank Plc’s national scale long and short-term issuer ratings of BBB-(NG) and A3 (NG) respectively; with the Outlook revised to Positive from Stable.
The positive outlook reflects the potential upside on Jaiz Bank Plc’s capitalisation assessment, due to the imminent equity capital injection, the rating agency said in a note.
GCR said the ratings affirmation balances Jaiz Bank’s good funding structure and liquidity profile, against a constrained risk position, with the non-performing financing (NPF) ratio sustained above the regulatory tolerable limits of 5%.
As a pioneer non-interest bank in Nigeria, Jaiz Bank has maintained a leading position within the non-interest banking sub-sector, accounting for market shares of 41%, 45%, and 52% of the sub-sector’s total assets, deposits and financing portfolio respectively as of 31 December 2023.
However, Jaiz Bank remains relatively small in the broader Nigerian banking sector with a market share of less than 1%, which limits its competitive position.
Positively, the bank’s earnings have grown consistently over the years, with operating revenues registering a 5-year cumulative average annual growth (CAGR) of 40.0% to N36.1 billion or USD40.1 million as of 31 December 2023, underpinned by the expanding operations in its core financing and investing businesses.
GCR analysts said they recognised the good revenue stability, with no market-sensitive income recorded in 2023 given that Jaiz Bank does not actively trade in financial assets.
The rating agency stated that the planned transition to a holding company structure could enhance business diversification and strengthen earnings generation over the short to medium term.
Jaiz Bank’s GCR core capital ratio declined marginally to 23.6% as of 31 December 2023 from 24.2% in 2022 due to the faster growth in risk-weighted assets compared to the bank’s internal capital generation.
The bank’s new capital injection of N10 billion which currently awaits regulatory approval is expected to strengthen the GCR core capital ratio above 25% over the next 12-18 months, according to the rating note.
This, coupled with other capital raising initiatives could support GCR Ratings analysts’ capitalisation assessment over the rating horizon.
Jaiz Bank’s risk position is considered to be a negative rating factor, reflecting high NPF ratio which remains above the regulatory tolerable limit of 5%.
As of 31 December 2023, the bank’s NPF ratio registered at 8.9%, while the credit loss ratio was at 2.6% at the same date.
Also, the financing loss reserve coverage of the stage 3 financing portfolio is considered moderate at 58.7% as of 31 December 2023 from 49.7% in 2022.
Analysts however noted that the bank financing portfolio is diversified, with the single and twenty largest obligors accounting for 12.3% and 35.9% respectively as of 31 December 2023.
However, GCR noted that one name breached the single obligor limit of 20% of shareholders’ funds in 2023, although regulatory forbearance has been obtained in this regard.
The financing portfolio evidenced good sectorial diversification, with the five largest sectors jointly accounting for 84.5% of the financing book as of 31 December 2023, according to the rating note.
Looking ahead, analysts expect the risk position to remain strained over the next 12-18 months, amid the challenging operating environment.
“We assessed the bank’s funding and liquidity as positive ratings factor. As of 31 December 2023, the bank was largely funded by customer deposits, which constituted 92% of the funding base, up from 90% in 2022”.
The customer deposits book grew by 60.1% to N466.5 billion or USD518 million as of 31 December 2023 and further to N657 billion or USD414 million as of 31 July 2024, underpinned by improved deposit mobilisation strategy and operational restructuring during the review period.
Consequently, the cost of funds remains low at 2.4% in 2023 .Additionally, the customer deposits book remains well diversified, with the single and twenty largest depositors accounting for a lower 4.0% and 13.5% of the deposits pool respectively as of 31 December 2023.
Jaiz Bank also maintained a robust liquidity position, registering a regulatory liquidity ratio of 50.8% as of July 2024, up from 37.2% in Dec 2023 and it is well above the regulatory minimum of 10% for non-interest banks in Nigeria.
Furthermore, the GCR liquid assets to customer deposits was sound at 65% as of July 2024 while liquid assets coverage of wholesale funding registered at 14x from 3.6x in Dec 2023.
The positive outlook reflects our expectations that the planned capital injection could support the GCR core capital ratio above 25% over the rating horizon. #GCR affirms Jaiz Bank Ratings, Upgrades Outlook to Positive
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