GCR Assigns BBB-/A3 Ratings To Greenwich Merchant Bank Limited

GCR places GEL Utility & Aarti Steel Nigeria ratings on “Review Extension”
GCR places GEL Utility & Aarti Steel Nigeria ratings on “Review Extension”

GCR Ratings (GCR) has assigned Greenwich Merchant Bank Limited’s national scale long and short-term issuer ratings of BBB-(NG) and A3(NG) respectively, with a Stable Outlook.

Rating history – Greenwich Merchant Bank Limited

Rating class
Rating scale
Long Term issuer Initial/last National BBB-(NG) Stable August 2021
Short Term issuer National A3(NG) August 2021

Rating rationale

The ratings assigned to Greenwich Merchant Bank Limited (“Greenwich MB” or “the bank”) balance its nascent banking operations of less than a year, limited operational scale, strong capitalisation, robust liquidity and sound risk position.

Greenwich MB is a new entrant in the Nigerian merchant banking space, evolving from an investment banking led franchise (under its former name Greenwich Trust Limited) with over 27 years track record. Leveraging existing relationships, strategic alliances, and somewhat diverse product offerings by its subsidiaries (asset manager and stockbroking) and affiliated entities, the bank envisages accelerated operational expansion over the short to medium term.

However, Greenwich MB’s competitive position is currently constrained by its limited operational scale and very small customer base, as evidenced by the elevated concentration risk by both the loan portfolio and deposit book. Management & Governance is a neutral rating factor as it is in line with best practice.

Capitalization is considered strong, with GCR computed capital ratio registered at a robust 151% as of 30 June 2021 (FY20: 185%), reflective of its nascent banking operations and moderate loan exposures to date. Over the next 12-18 months, we expect Greenwich MB’s capitalization metrics to be weighed down (albeit to remain at a sound level) by its operational expansion drive and accelerated loan book growth, as well as the consequential increase in risk-weighted assets (“RWA”). Nonetheless, we expect the core capital ratio to remain within a strong range of above 35% over the rating horizon.

Also, increased value proposition and lending activities are expected to further support internal capital generation, albeit at a relatively slower pace vis-à-vis the anticipated RWA growth.

Risk position is sound and well contained, evidenced by the nil non-performing loan (“NPL”) as of 30 June 2021. This position largely rides on the back of Greenwich MB’s relatively short track record, with the most part of the loan book yet to reach maturity. Reflective of its small customer base, concentration by obligor is high, with just four obligors making up the loan portfolio as of 30 June 2021.

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We anticipate a more diversified loan book over the short to medium term as the bank continues to expand its lending activities. Conversely, foreign currency (“FCY”) risk is considered minimal, as the FCY loan portfolio is still evolving following the recent regulatory FX license approval. That said, the bank expects to mitigate FX risk through cautious FX exposure to only obligors with FX receivables.

Greenwich MB’s funding and liquidity is robust and considered appropriate for its current operational scale. As of 30 June 2021, the bank was predominantly funded by equity and customer deposits, constituting 84.6% and 15.4% of the funding base respectively. Although the deposit book remained moderate at N4.9bn as of 30 June 2021, management expects to improve deposit mobilization through leveraging the digital platform, strategic alliances with fintechs, and increase the value proposition to customers. Expectedly, concentration by depositors is considered high, with the twenty largest depositors constituting 96.6% of the deposit book as of 30 June 2021.

Outlook statement

The stable outlook reflects GCR’s expectation that Greenwich MB would successfully implement its outlined strategic initiatives and expand operational scale over the short to medium term. We believe capitalization metrics would be sustained at strong levels, albeit the outpacing growth in RWA vis-à-vis internal capital generation could weigh down capitalization assessment somewhat.

Asset quality metrics are expected to remain sound over the rating horizon on the back of the bank’s cautious lending approach and stringent credit approval process. Liquidity is expected to remain at robust levels, despite the loan book growth.