'Creditworthiness' Jaiz Bank receives Fitch Ratings’ stable outlook, viability rating

Fitch Ratings has given Jaiz Bank PLC, Nigeria’s first non-interest bank, a Long-Term Issuer Default Rating (IDR) of ‘B-‘ with a Stable Outlook and a Viability Rating (VR) of ‘b-‘.

Jaiz Bank was Nigeria’s first fully-fledged non-interest banking (NIB; Islamic banking) institution, and it has a leading Islamic finance franchise in the country, accounting for 78 percent of NIB sector assets at the end of 2020.

Despite recent strong growth, its market share remains small in comparison to the larger banking sector, accounting for only 0.4 percent of sector assets at the end of 2020.

Because Jaiz Bank is restricted from some traditional banking activities, revenue diversification is particularly weak by domestic standards, with non-financing income accounting for only 8% of operating income in the first nine months of 2021.

The IDRs of Jaiz Bank are driven by its standalone creditworthiness, as expressed by its VR of ‘b-‘, according to Fitch.

The bank’s ratings reflect the bank’s operations being concentrated within Nigeria’s difficult operating environment, a small but evolving franchise, high credit concentrations, aggressive financing and balance-sheet growth expected to continue in the medium term, and financing-quality weaknesses.

“Extremely high financing growth has prevailed in recent years (30 percent in 2020 and 32 percent between January and September 2021) as management pursued an aggressive growth strategy that has flattened asset-quality metrics and created 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.