Nigeria’s first non-interest banking, Jaiz Bank PLC, has been assigned a Long-Term Issuer Default Rating (IDR) of ‘B-‘ with a Stable Outlook and a Viability Rating (VR) of ‘b-‘ by Fitch Ratings.
Jaiz Bank was the first fully-fledged non-interest banking (NIB; Islamic banking) institution established in Nigeria and it has a leading Islamic finance franchise in Nigeria, representing 78 percent of NIB sector assets at end-2020.
However, despite strong growth in recent years, its market share remains small relative to the wider banking sector, accounting for just 0.4 percent of sector assets at end-2020.
Revenue diversification is particularly weak by domestic standards, with non-financing income representing just 8 percent of operating income in the first nine months of 2021 as Jaiz Bank is restricted from some conventional banking activities.
According to Fitch, the IDRs of Jaiz Bank are driven by its standalone creditworthiness, as expressed by its VR of ‘b-‘.
The ratings reflect the concentration of the bank’s operations within Nigeria’s challenging operating environment, a small but evolving franchise, high credit concentrations, aggressive financing and balance-sheet growth that is expected to continue over the medium term, and financing-quality weaknesses.
“Exceptionally high financing growth has prevailed in recent years (30 percent in 2020 and 32 percent between January and September of 2021) as management has pursued an aggressive growth strategy that has flattered asset-quality metrics and creates seasoning risks.
Single-borrower credit concentration is high, with the 20-largest customer exposures representing 36 percent of gross financing assets and 214 percent of Fitch Core Capital (FCC) at end of the first half of 2021.
“Healthy profitability is underpinned by a wide net financing margin that benefits from among the lowest cost of funding in the banking sector and has improved in recent years as a result of greater cost efficiency.
“Depositor concentration is moderate compared with peers’, with the 20-largest depositors representing 17 percent of customer deposits at end of first half of 2021. Jaiz Bank’s gross financing/customer deposits ratio (51 percent at end-9M21) is low. Liquidity coverage is comfortable in both local and foreign currencies.
In assessing Jaiz Bank’s ratings, Fitch considered important differences between Islamic and conventional banks. These factors include closer analysis of regulatory oversight, disclosure, accounting standards and corporate governance. Islamic banks’ ratings do not express an opinion on the bank’s compliance with sharia. Fitch will assess non-compliance with sharia if it has credit implications.
