GCR Ratings (GCR) 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.
| Rated Entity | Rating Class | Rating Scale | Rating | Outlook/Watch |
| Providus Bank Limited | Long-term issuer | National | BBB-(NG) | Rating Watch Evolving |
| Short-term issuer | National | A3(NG) | – |
Rating Rationale
The ratings watch evolving outlook on Providus Bank Limited (Providus Bank or the bank) 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 balances a moderate competitive and risky position, a stable funding structure, and adequate liquidity.
Providus Bank is a regional commercial bank that has grown aggressively over the last five years, registering a balance sheet size of N2.2trn (US$1.4bn) as of 30 June 2024, approximately 40% over the position at the end of the 2023 financial year. This translated to an estimated 1.5% share of the banking industry’s resources. The bank’s growth has been largely driven by strategic partnerships, strong shareholders’ support, and a good digital presence. Thus, operating revenues totalled N91.0bn in 2023, with net interest and non-interest income contributing 40.8% and 59.2%, respectively. (December 2022: 63.6% and 36.4%). In August 2024, the CBN announced a proposed merger with Unity Bank Plc, a relatively smaller Nigerian-based commercial bank with a national license. Given that the process is ongoing, GCR will assess the possible impact on the bank’s credit profile in the coming months.
Capitalisation is assessed at an intermediate level. The GCR core capital ratio improved slightly to 24.2% as of 30 June 2024 (31 December 2023: 23.5%), supported by good earnings generation and retention despite the growth in risk-weighted assets. Positively, the bank’s loan loss reserve coverage of stage 3 loans strengthened to 109% in 2023 from 52.1% the prior year. While the GCR core capital ratio could moderate over the next 12-18 months, we expect it to range above 20.0% based on risk asset growth and good earnings accretion.
Risk is a positive rating factor, reflective of the bank’s relatively good asset quality metrics. In 2023, the loan book grew by a significant 75.7% (2022: 71.2%) to N506.6 billion (US$563.2m) and further to N646.1bn (US$426.9m) as of 30 June 2024. However, the non-performing loans ratio rose to 6.0% (2023: 2.3%) above the regulatory minimum of 5.0%. In the same period, the credit loss ratio registered at a higher 2.1% (December 2022: 1.4%), reflecting additional provisions due to the expanding loan portfolio and prevailing weak macroeconomic environment.
Positively, obligor concentration moderated considerably, as the twenty largest obligors accounted for a lower 4.0% of gross loans as of 31 December 2023 (2022: 37.2%) due to repayments by large obligors and an expanded loan portfolio. Foreign currency (FCY) loans remained relatively stable, accounting for 10.3% of the loan portfolio, similar to the previous year (10.2%) and well below the industry average of c.45%. 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.
Our 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% of the funding base as of 31 December 2023 (31 December 2022: 84.6%). Customer deposits have grown steadily over the years, increasing by 121.8% to N1.1trn (US$1.2bn) as of 31 December 2023, and further to N1.5trn (US$ 991.2bn) in June 2024. This growth is largely attributed to the bank’s effective deposit mobilisation strategy. However, given the heightened interest rate environment and about 44.8% of customer deposits in costly and rate-sensitive term deposits, the cost of funds inched up to 6.1% (31 December 2022: 5.9%). 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% and 2.2x in 2023 (December 2022: 49.6% and 5.4x), though reflecting pressures from cash reserve requirements. We expect funding and liquidity metrics to remain acceptable over the next 12-18 months.
Outlook Statement
The ratings watch evolving outlook reflects expectations that the ratings may be downgraded, improved, or unchanged depending on GCR’s assessment of the anticipated merger of Unity Bank Plc when concluded.
Providus Bank Limited – Ratings History
| Rating Class | Review | Rating Scale | Rating | Outlook | Date |
| Long-term issuer | Initial | National | BB(NG) | Stable | June 2020 |
| Short-term issuer | Initial | National | B(NG) | Stable | June 2020 |
| Long-term issuer | Last | National | BBB-(NG) | Stable | August 2023 |
| Short-term issuer | Last | National | A3(NG) | Stable | August 2023 |
