Bank Rating MethodologyAgusto & Co. currently assigns short term ratings to Nigerian Banks on a solicited basis. Our ratings are an assessment of the financial condition of the bank and its capacity to repay deposit obligations (in local currency) as at when due. Overall, our rating provides an opinion on the credit risk of the rated bank. Our ratings are independent and forward looking for a business cycle or a maximum of 12 months.
In assigning a rating, we consider both qualitative and quantitative factors. Each rating category (qualitative & qualitative) is assigned a predetermined weight, and is scored in the rating process. This ensures a balance between the various factors considered in arriving at the rating.
Information relied upon include those gathered from the entity being rated through meetings, company visits as well as audited financial statements (annual, interim or quarterly). We also rely on regulatory industry and company reports, publicly available information as well as in-house data. We apply a top-down approach, with emphasis on firm specifics.
Our methodology incorporates We center on macroeconomic & political trends and the current state of the economy to ascertain how key variables impact the industry.
We consider the nature and structure of the banking industry, with particular emphasis on regulation, the competitive landscape, financial condition and key risk & success factors. Our analysis enables us determine the degree of operating risk faced by the rated bank, establish industry trends and thus facilitate a company to industry comparison.
Agusto & Co. lays emphasis on the financial strength of the rated bank. In determining financial strength, we consider the bank's asset mix, the quality of its risk assets and the bank's credit risk management practice. We recognize that risk management practice is indicative of future state of the bank's assets. Agusto & Co. also examines the rated bank's profitability, earnings capacity, the size and adequacy of its capital, liquidity & liability generation, industry position and market share. We consider these factors on a standalone basis and in comparison with selected peers.
Other important factors include ownership structure, the quality of management & staff and labour-management relations. In evaluating management performance, we focus on strategic direction of management, risk tolerance and track record. We may also consider verified market information on the rated bank and its prospects based on industry and company fundamentals.
- On going review and monitoring
Agusto & Co. monitors the rated entity during the life of the rating. We take rating actions as a result of changes in company fundamentals or business environment that we believe impact the rating. A bank's rating may be changed, suspended or withdrawn at any time. However, the reason for the change, suspension or withdrawal is usually communicated to the bank in advance.
