Leading global rating agency, Standard and Poor’s (S&P), has assigned (B/stable/B) to Skye Bank Plc in its current rating released in August 2014. S&P said it based its rating of the bank on Nigeria’s positive economic prospects which will support Skye Bank’s earnings growth, capitalisation and asset quality over the next 12-18 months.
The agency rationalised Skye Bank’s stable rating on its modest but profitable franchise operating in the mid-tier of Nigeria’s highly competitive banking sector, saying it anticipates that the bank’s RAC ratio will remain between 5.5 per cent and 6 per cent over the next 12 months, reflecting robust internal capital generation and mild risk-asset accumulation.
“We also expect that Skye Bank will maintain non-performing loans (NPLs) at about 3.5 per cent of total loans, a cost of risk of about 2.5 per cent and a loan-loss coverage ratio in excess of 90 per cent of NPLs over the next 12 months,” while stating that the bank is largely funded by stable customer deposits and relies on a sizable portfolio of liquid assets.
The agency noted that Skye Bank had a modest, mid-tier position in Nigeria’s increasingly competitive banking sector, pointing out that in 2013, it reported total assets of N1.4 trillion ($7 billion at $1 to N160), ranking it the eighth-largest bank in Nigeria by lending.
Also, the renowned global rating body said its rating is based on the bank’s strategy of focusing on expanding its retail and commercial (largely SME) franchise, while leveraging its branch network and electronic platforms to mobilise low-cost retail deposits.
“In 2013, the bank achieved a marked reduction in cost of funds to 4.7 per cent, from 6.8 per cent a year earlier, thus improving its net interest margin by 140 basis points to 6.6 per cent. Although assets are mainly generated through the corporate and investment banking unit (59 per cent of assets; 17 per cent of profits before tax), higher yields achieved on loans from the commercial banking (28 per cent of assets; 49 per cent of profits before tax) and retail banking (13 per cent of assets; 34 per cent of profits before tax) units resulted in disproportionate profit contributions at year-end 2013,” it said.
We believe the bank would forgo higher margins on corporate loans to retain top-tier corporates as a strategic source of additional business by banking their employees and their value chain of suppliers, contractors and other service providers,” it said.
“We have not included in our outlook, any impact from the prospective mergers or acquisitions mooted by Skye Bank as the timing, capital impact and prospective support from shareholders are unclear.”
However, such a transaction is expected to have a significant impact on the bank’s capitalisation and, potentially, its risk profile. “We could lower the ratings if the bank fails to maintain a risk-adjusted capital (RAC) ratio above 5 per cent over the next 12 months,” S&P said.
Source : SunOnline