Fitch Ratings has affirmed Jaiz Bank Plc’s Long-Term Issuer Default Rating (IDR) at ‘B-’ and Viability Rating (VR) at ‘b-’. Fitch has also affirmed the National Long-Term Rating at ‘BBB+(nga)’. The Outlooks on the Long-Term IDR and National Long-Term Rating are Stable.
The affirmation underscores the bank’s strong asset quality and healthy profitability, tempered by its small capital base, limited business model, and modest franchise in the Nigerian banking sector. Jaiz Bank remains Nigeria’s foremost non-interest financial institution, commanding a dominant 38 per cent share of Islamic banking assets but representing just 0.6 per cent of total banking system assets.
Fitch said, the ‘b-’ VR reflects Jaiz Bank’s exposure to Nigeria’s volatile operating environment and its high credit concentration, especially in the agricultural sector. However, the bank has limited exposure to the troubled oil and gas sector, and its sovereign risk, while elevated, is largely through Federal Government sukuk and Central Bank reserves, over ten times its Fitch Core Capital (FCC).
The rating agency said Jaiz Bank’s IDRs are driven by its standalone creditworthiness, as expressed by its ‘b-’ VR. The VR captures the concentration of the bank’s operations in Nigeria and balances sound asset quality and healthy profitability with a small franchise, weak revenue diversification and a small capital base.
“The VR is below the ‘b’ implied VR due to its business profile, reflecting Jaiz Bank’s small size and limited business model diversification. Jaiz Bank’s National Long-Term Rating is lower than that of most Nigerian banks, primarily due to the bank’s smaller franchise and equity base relative to its peers.
An upgrade of the VR and Long-Term IDR would require a strengthening of the bank’s franchise, as indicated by increased market shares, moderation of financing growth and a larger capital base,” it pointed out.
Despite these constraints, Jaiz Bank posted strong profitability metrics. “Operating profits averaged a healthy 5.3 per cent of risk-weighted assets (RWA) between 2020 and 2023. Healthy profitability is underpinned by a wide net financing margin, which reflects the highest asset yield in the banking system and particularly low funding costs. Revenue diversification is limited by the Islamic-banking business model.
“Jaiz Bank’s FCC ratio of 18.5 per cent at end-3Q24 was supported by a low RWA density (22%) that benefits from an Islamic bank-specific discount of 50 per cent. Strong pre-impairment operating profit provides a sizable buffer to absorb impairment charges without affecting capital. The bank complies with the Central Bank of Nigeria’s minimum capital requirement for NIB after raising N10 billion of paid-in capital through a private placement in 4Q24.
“The bank’s funding profile is dominated by a high percentage of current and savings accounts (end-3Q24: 86 per cent of customer deposits) and particularly high deposits from retail and SMEs (50 per cent), supporting funding stability and low funding costs. Depositor concentration is fairly low. Liquidity coverage is comfortable in naira and foreign currency,” it stressed.
It, however, pointed out the bank’s high sovereign exposure, saying, “single-borrower credit concentration is high relative to gross financing assets and total equity. Lending to the higher-risk agriculture and related industries is high but Jaiz Bank has limited exposure to problematic oil and gas loans under forbearance. Sovereign exposure through Federal Government of Nigeria sukuk and Central Bank of Nigeria cash reserves is very high relative to Fitch core capital (FCC; over 10x at end-3Q24).”
