Yemisi Izuora
Nigeria’s credit Rating Agency and a pan African leader in credit reports, Agusto & Co. limited has assigned an “A+” rating to Coronation Merchant Bank Limited.
The rating assigned to the bank is underpinned by good capitalisation, healthy asset quality, acceptable profitability and an experienced management team with a clear succession plan. The rating is however constrained by concentration in the loan book, volatile customer deposits and high funding costs.
Since the transition to a merchant bank in 2015, Coronation MB has focused on trade transactions and working capital financing for risk asset creation. Notwithstanding, the short tenured and self- liquidating nature of the transactions, the loan book has continued on an upward trajectory, expanding by 68.5 per cent to ₦54.3 billion in 2018.
This was in contrast to the stagnant banking industry’s loan book and the 1.9 per cent GDP growth in 2018. A further 26.5 per cent loan growth is projected in 2019, as part of the strategy to become Nigeria’s foremost international trade finance solution provider.
While we acknowledge the low base of the loan book, we believe the loan growth is high compared to the projected GDP growth of 2.5 per cent for the year. In addition, we consider the macro economy to still be at a vulnerable state.
Despite the harsh operating terrain, Nigerian banks have been resilient. Merchant banks in particular have leveraged the malleability of their license to optimise income. Through their investment banking divisions, advisory services are deployed to provide bespoke products for corporates.
Amidst intense competition from the large commercial banks, constraining operational guidelines and increased focus on the investment banking/asset management, profitability of the segment however compares favourably against the Industry average. Nevertheless, it is believed that merchant banks will remain a small segment of the Industry based on restriction on liability generation and intense competition from established commercial banks.