Moody’s Investors Service, an accomplished and highly respected international ratings agency has further confirmed the resilience of Sterling Bank in Nigeria’s competitive banking sector by assigning a Local and Foreign Currency Issuer and Deposit Ratings of B2 with stable outlook.
The agency in a release made available to newsmen in Lagos, described Sterling Bank as a stable financial institution with solid quality assets, robust Information Technology and strong risk management systems.
It also assigned a Counterparty Risk Assessment (CRA) of B1(cr)/Not Prime(cr) to the Bank and declared all ratings of the Bank stable.
While Nigeria’s economy features some institutional and structural weaknesses that can pose challenges to the banks, Sterling Bank, according to Moody’s, has also shown strong resilience to shocks and it presents sizable growth opportunities, which will allow the bank to expand steadily.
The agency noted that its Baseline Credit Assessment (BCA) also reflects the bank’s solid liability profile.
“The Bank is predominantly deposit funded with a low reliance on more sensitive market funds. Deposits make up 89 percent of the Bank’s funding sources compared with an average of around 65 percent for the system” the Agency stated.
“BCAs are the measure of an issuer’s standalone financial strength that describe the probability of a bank defaulting on any of its rated instruments, in the absence of external support.
Moody’s ratings also incorporate one-notch uplift from Sterling’s b3 BCA, based on their “assessment of a moderate likelihood of government support in the event of need. Furthermore, provision coverage is good, with loan loss reserves amounting to 98 percent of doubtful credit.
“The B2/Not Prime Local and Foreign Currency issuer and deposit ratings are underpinned by a b3 Baseline Credit Assessment (BCA).
“Sterling Bank’s b3 BCA reflects the Bank’s solid asset quality metrics and provision coverage; improvements to the bank’s IT infrastructure and risk management processes; and high liquidity buffers and a solid deposit funding base”.
Moody’s explained further in the statement that “an important factor driving Moody’s view of Sterling’s stand-alone assessment is the Bank’s asset quality.
“Non-performing loan (NPL) levels are currently low and compare favourably against domestic and global peers. NPLs stood at 2.7 percent as of year-end 2014 according to our adjusted ratio, which takes into account not only individually impaired loans but also loans that are overdue for more than 90 days but not reported as impaired — as we do for other banks”.
The Agency stated that an upgrade in the bank’s rating could be triggered by improvements in the operating environment and overall macro profile, or following developments that would alter our expectation that the bank will face asset quality volatility, including for instance a longer track record that would more clearly highlight the robustness of the bank’s risk management framework and controls.
Furthermore, an upgrade of Nigeria’s sovereign rating could also put upward pressure on the bank’s ratings.
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