Discount House Rating MethodologyAs a result of their stabilization role in the banking industry Discount Houses occupy a unique position in the Nigerian Financial Services Industry. They are also one of the most successful non-bank financial institutions (NBFI's) in Nigeria. Agusto & Co. currently assigns short term ratings to the five Discount Houses in Nigeria. Our ratings are an assessment of the financial condition of the Discount House and its capacity to meet its obligations (in local currency) as at when due. Overall, our rating provides an opinion on the financial condition of the Discount House. Our Discount House ratings are independent and forward looking for a business cycle or a maximum of 12 months.
As with all our ratings we consider both qualitative and quantitative factors. Our ratings are designed to capture the specific peculiarities of the discount house subsector. Each category 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 in-house data.
Our methodology incorporates
We center on macroeconomic & political trends and the current state of the economy to ascertain how key variables impact the financial services industry and the Discount House subsector in particular
We consider the nature and structure of the discount house subsector, 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 discount house, establish overall trends and thus facilitate a company to industry comparison.
We place considerable emphasis on the quality of the discount house's risk assets and credit risk management practice. Agusto & Co. also examines the rated discount house's profitability, earnings capacity, the size and adequacy of its capital, liquidity & liability generation and market share. We consider these factors on a standalone basis and in comparison with selected peers. By regulation, discount houses are mandated to hold 60% of deposit liabilities as liquid assets and have a narrow scope of operations. We thus consider product innovation and the ability to broaden both business scope and customer base key to sustainability of earnings and continued relevance. Other important factors include ownership structure and the quality of management & staff.
- 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 discount house'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 discount house in advance.
:: Rating Definition :: Tenure of Ratings ::
