GCR Ratings has upgraded Greenwich Merchant Bank Limited’s national scale long and short-term issuer ratings to BBB+(NG) and A2(NG) respectively from BBB(NG) and A3(NG), with the outlook revised to stable from positive.
In a note, the emerging market rating agency wholly owned by Moody’s Investors Service said he ratings the upgrade reflects Greenwich Merchant Bank Limited’s sustained strong risk position and capitalisation, stable funding base and adequate liquidity.
It added that the rating also recognizes the bank’s modest competitive position.
GCR said since its transition to a merchant bank from an investment bank in September 2020, Greenwich MB has maintained a growth trajectory, registering a four-year average annual growth rate (2020-2023) of 37.2% in total assets to N145.7 billion as of 30 June 2024.
The rating agency explained that Greenwich operating revenues improved considerably in the first half of 2024 to N7.8 billion from N5.9 billion in 2023 and remains driven by stable earnings from the core lending business.
GCR said since its transition to a merchant bank from an investment bank in September 2020, Greenwich MB has maintained a growth trajectory, registering a four-year average annual growth rate (2020-2023) of 37.2% in total assets to N145.7 billion as of 30 June 2024.
The rating agency explained that Greenwich operating revenues improved considerably in the first half of 2024 to N7.8 billion from N5.9 billion in 2023 and remains driven by stable earnings from the core lending business.
However, the rating agency said its assessment of the Bank’s competitive position is constrained by its small franchise that contributes less than 1% to the broader banking sector’s assets and its relatively weaker operational efficiency metrics compared to peers as seen in the cost to income ratio of 69.6% in 2023 versus 66.2% in 2022.
The rating agency sees Greenwich Merchant Bank’s capitalisation a ratings positive. It explained that as a relatively new merchant bank, the GCR core capital ratio has remained strong at 53.7% as of 31 December 2023. Up from 49.1% in 2022.
The capital position was underpinned by a cautious growth in risk assets, a low risk profile and good earnings retention that reflects shareholders’ support, according to GCR.
Over the next 12-18 months, analysts expect the GCR core capital ratio to moderate gradually as the bank grows its capital.
The GCR core capital ratio is likely to remain within the highest band, supported by anticipated capital injection to align with the CBN’s new minimum capital requirements amid a projected considerable but cautious growth in risk assets.
“We assessed risk at an intermediate level. Our consideration is supported by the sustenance of a well-contained risk profile, evidenced by the zero non-performing loans (NPLs) since inception and a moderate credit loss ratio of 0.7% which was observed as of 30 June 2024”.
GCR noted that Greenwich Merchant Bank obligor concentration persists with only 13 obligors as of 31 December 2023 – down from 15 obligors in 2022 – though largely to quality counterparties.
The rating agency noted that the short-term maturity profile of the loan book causes fluctuations in the number of obligors over short periods.
The rating note revealed that the merchant bank’s foreign currency (FCY) risks exist in the balance sheet.
According to GCR, Greenwich Merchant Bank’s FCY loans to gross loans registered at 21.4% as of 30 June 2024 from 66.4% in Dec, 2023.
Analysts at the firm said these loans are predominantly trade-related and are naturally hedged by adequate matching to obligors with FCY receivables.
“Our expectation is that the Bank’s asset quality metrics will remain sound over the next 12-18 months”.
GCR said its assessment of Greenwich’s funding and liquidity is good, largely supported by a stable funding structure that largely (93%) comprised customer deposits as of 30 June 2024 and a liquid balance sheet.
Greenwich Merchant Bank’s term deposits constituted about 68% of the customer deposits – reflecting the wholesale nature of the business- and translated to an elevated cost of funds of 10.5% in 2023.
In the same period, depositor concentration increased with the top twenty depositors accounting for 57.0% of total deposits as of 31 December 2023 from 37.7% in 2022.
“While this remains within the industry range, we expect an increased diversification on a forward-looking basis”.
GCR said liquid assets to customer deposits registered at 59.8% in 2023 from 34.7% in 2022 and was supported by the reduction in the cash reserve requirement (CRR) for merchant banks to 10.0% from 32.5% in August 2023.
“We expect funding and liquidity metrics to remain at acceptable levels over the next 12-18 months”, the rating note stated.
Outlook statement
The stable outlook reflects expectation that Greenwich Merchant Bank’s GCR core capital ratio will remain above 35% over the next 12-18 months while maintaining sound asset quality and a cautious lending approach. Similarly, funding and liquidity metrics are expected to be sustained at sound levels. #GCR Upgrades Greenwich Merchant Bank Ratings
