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Nigeria-Based Guaranty Trust Bank 'B-B' And 'ngBBB-ngA-2' Ratings Affirmed; Outlook Stable

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Tuesday, September 26, 2017/9:59AM/ S & P Global Ratings

We expect Guaranty Trust Bank PLC (GTBank) will continue to display good earnings and above-sector-average asset quality metrics despite slow economic recovery in Nigeria.

We are affirming our 'B/B' global scale and 'ngBBB/ngA-2' national scale ratings on the bank.


The stable outlook on GTBank reflects that on Nigeria, as well as our expectation that the bank's profitability and risk profile will remain broadly stable over the next 12 months.


S&P Global Ratings affirmed its 'B' long-term and 'B' short-term counterparty credit ratings on Nigeria-based Guaranty Trust Bank PLC (GTBank). The outlook is stable. At the same time, we affirmed our national scale ratings on GTBank at 'ngBBB/ngA-2'.


The affirmation reflects our view that the bank will continue to display good earnings and above-sector-average asset quality indicators despite slow economic recovery in Nigeria.


We expect the bank to continue to outperform domestic peers in terms of profitability over the next 12 months, supported by measured loan growth, highinterest margins, solid generation of fee income, and prudent cost management. As such, we project our risk adjusted capital ratio for GTBank to be slightly above 6% over the next 12-18 months.


The ratings also reflect the bank's top-tier position in Nigeria, well-established corporate franchise, growing retail franchise, and robust risk management framework and risk culture.


GTBank's risk position benefits from superior loan loss experience over the cycle compared with domestic peers. Nonperforming loans (NPLs) increased to 3.7% at mid-2017 from 3.2% at end-2015, due to devaluation of the Nigerian naira, high inflation pressure, and scarcity of U.S. dollars in Nigeria.


A conservative provisioning approach resulted in an increase in the bank's cost of risk to 4.25% at end-2016 from 0.9% a year earlier. We expect cost of risk will normalize around 1%, while NPLs increase slightly in 2017 before returning to their current levels thereafter.


We also think that the bank's stable and low funding cost support its creditworthiness. On June 30, 2017, GTBank recorded a stable funding ratio of 141.8% supported by a high proportion (82%) of deposit funding. Net broad liquid assets covered 60% of short-term deposits and 16x short-term wholesale funding. However, similar to other banks operating in Nigeria, GTBank's deposit base is confidence sensitive due to its contractually short-term nature.


The bank holds a long position in U.S. dollars, stemming from domiciliary accounts and funding raised in U.S. dollars over the past four years. This, alongside an improvement in oil production and stabilizing oil prices, has led us to believe that foreign currency liquidity risk has abated.


The stable outlook on GTBank reflects that on Nigeria, as well as our expectation that the bank's profitability and risk profile will remain broadly stable over the next 12 months.


We would lower the ratings on the bank if we lowered the ratings on Nigeria or if the bank's asset quality indicators deteriorated significantly.


Although unlikely to occur in the next 12 months, an upgrade of GTBank could  follow an upgrade of Nigeria while the bank continues to expand its retail activities and its financial profile remains broadly unchanged.




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