GCR Ratings has affirmed Providus Bank Limited’s national scale long and short-term issuer ratings of BBB-(NG) and A3 (NG) respectively, with the outlook revised to rating watch evolving from stable.
The emerging market ratings agency said its ratings watch involving outlook on Providus Bank Limited reflects the potential impact of the Central Bank of Nigeria’s (CBN) proposed merger with Unity Bank Plc, on the bank’s credit profile over the next six to 12 months.
The rating affirmation, according to GCR, balances a moderate competitive position and risk position, a stable funding structure, and adequate liquidity.
Providus Bank, a regional commercial bank has grown aggressively over the last five years, the rating note reads, registering a balance sheet size of N2.2 trillion or $1.4 billion as of 30 June 2024, approximately 40 percent over the position at the end of the 2023 financial year.
GCR said the Bank balance sheet size translated to an estimated 1.5 percent share of the banking industry’s resources.
The ratings agency said the bank’s growth has been largely driven by strategic partnerships, strong shareholders’ support, and a good digital presence.
The bank’s foreign currency (FCY) loans remained relatively stable, accounting for 10.3 percent of the loan portfolio, similar to the previous year (10.2 percent), and well below the industry average of about 45 percent, according to GCR.
The ratings agency said additionally, the inherent risks on these FCY loans are partly mitigated by granting these loans to obligors with foreign currency receivables.
“In view of lingering weaknesses in the operating environment, asset quality metrics could be pressured across the banking sector; however, we do not foresee a significant deterioration of the bank’s loan book in the near term,” GCR stated.
It added that assessment of funding and liquidity is positive to the ratings, underpinned by a stable funding base and a liquid balance sheet.
Providus Bank is predominately funded by stable customer deposits, which accounted for 86.0 percent of the funding base as of 31 December 2023 from 84.6 percent in 2022.
GCR stated that the bank’s customer deposits have grown steadily over the years, increasing by 121.8 percent to N1.1 trillion or $1.2 billion as of 31 December 2023, and further to N1.5 trillion or $991.2 billion in June 2024.
‘This growth is largely attributed to the bank’s effective deposit mobilisation strategy”, the rating note emphasises.
The ratings agency said given the heightened interest rate environment and about 44.8 peecent of customer deposits in costly and rate-sensitive term deposits, the cost of funds inched up to 6.1 percent from 5.9 percent in 2022.
“This is expected to moderate as the bank onboards more retail clients in line with its low-cost deposit generation strategy.”
GCR liquid assets coverage of customer deposits and wholesale funding registered at an adequate 36.5 percent and 2.2x respectively in 2023, reflecting pressures from cash reserve requirements.
“We expect funding and liquidity metrics to remain at acceptable levels over the next 12-18 months”, the rating agency stated.
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