GCR Ratings (“GCR”) has assigned Stanbic IBTC Pension Managers Limited an initial management quality rating of MQ2(NG)(mq), with a Stable Outlook.
Stanbic IBTC Pension Managers Limited
Management Quality Rating
Management Quality (“MQ”) ratings are on an alpha-numeric rating scale ranging from ‘MQ1’ (highest) to ‘MQ5’ (lowest). MQ ratings are not credit ratings and do not measure an entity’s relative ability to meet its financial obligations. The MQ ratings assess an entity’s organisational structure, risk management characteristics, and operational controls and provide the market with an opinion on the organisation’s overall quality, including management characteristics and operational practices. Unless stated otherwise, all figures and statistics are based on an inflation-adjusted basis.
The management quality rating assigned to Stanbic IBTC Pension Managers Limited (“Stanbic IBTC Pensions” or “the Manager”) reflects its strong brand as a leading pension funds administrator (“PFA”) in Nigeria, good management and capital preservation augmented by growing revenues and funds under management (“FUM”). This is counterbalanced by macroeconomic and regulatory constraints that heighten key counterparty concentration risks. The MQ rating is based on the following key factors:
Corporate profile: Stanbic IBTC Pensions is a subsidiary of Stanbic Holdings PLC, which has an 88.2% equity holding in the Manager, while Linkage Assurance Plc holds 11.8%. Stanbic Holdings PLC is a member of the Standard Bank Group (SBG)- one of Africa’s largest banking groups by assets totalling $17 billion as of 30 June 2022. Stanbic IBTC Pensions’ membership of the SBG enables it to leverage group resources for its portfolio management functions. The Manager delivers pension fund administration and management services to over 1.9 million private and public sector employees (largely Retirement Savings Accounts holders under the defined contribution scheme) through its extensive network of 39 branches nationwide as well as Stanbic IBTC Bank branches. Stanbic IBTC Pensions also manages defined benefit plans for certain large corporates and provides value added services including retirement planning advise and personal financial planning. Ease of account access is achieved through channels such as the internet, telephone, email and SMS/text messages. With total funds under management (“FUM”) of N4.7 trillion ($10.6 billion at N444/$) as of 30 September 2022, Stanbic IBTC Pensions accounted for c.32% of the Nigerian pension industry’s FUM.
The Manager’s governance and control structure is assessed to be strong. As of 31 December 2022, Stanbic IBTC Pensions was governed by a 12-member board of directors comprising eight non-executive directors (two of whom are independent), and four executive directors. The management team is stable and experienced; with key personnel risk considered low. Staff strength was over 470 persons as of December 2022, split between the back office and front office staff in the ratio 51:49.
Stanbic IBTC Pensions’ activities are regulated by the National Pension Commission (PENCOM), which is the apex regulator and guided by the Pension Reform Act, 2014 that governs and regulates the administration of the uniform contribution pension scheme (CPS) for both public and private sectors in Nigeria.
Financial sustainability: GCR considers Stanbic IBTC Pensions’ financial standing to be stable and sound. The Manager’s capital base of N72.9 billion as of 30 June 2022 (31 December 2021: N75.0 billion) was significantly higher than the required regulatory minimum capital of N5.0 billion for PFAs. Capital accumulation has been supported by sound internal earnings generation and retention through management and investment income. During the financial year 2021, gross revenue increased by 15.4% to N46.1 billion ($115.3 million at N400/$ average), with 92.1% in fee income. Fees earned across all managed funds are regulated by PENCOM, impacting the company’s fee income. In the same year, operating costs increased by 14.4% driven largely by personnel expenses; translating to a lower cost-to-income ratio of 27.5% (2020: 27.7%). EBITDA margin remains sound and stable, averaging 72.1% over the last three years and registering at 71.4% in 2022 H1. Over the rating horizon, GCR expects Stanbic IBTC Pensions’ stable earnings and moderate costs to support capitalisation.
Portfolio management: Portfolio management is considered sound. Stanbic IBTC Pensions manages two broad categories of funds- the Retirement Savings Accounts (RSA) Funds under the CPS and privatively managed institutional funds under the defined benefit/contribution plans and additional benefit schemes. Both fund categories are regulated by PENCOM, with the RSA funds accounting for 91.3% of total FUM as of 30 September 2022. Portfolios are constrained to major asset classes such as equities, fixed income securities and alternative assets, all within Nigeria, as permitted by the regulator. In addition, counterparty exposures are largely with the Federal Government of Nigeria (“FGN”) and financial institutions with a minimum of BBB national scale rating. Given limited investment outlets, key counterparty concentration risk exists.
Stanbic IBTC Pensions’ investment style is predominantly value based with a long-term bias. The Manager implements the top-down approach in the asset/securities selection process which is monitored monthly by the executive committee. Further in-depth analyses are then conducted on these assets/securities. Asset selection is largely based on research-driven fundamental valuations (focusing only on publicly listed investments with strong fundamentals) and Stanbic IBTC Pension managers have access to Stanbic IBTC Group’s in-depth market research, which supports the investment decision making process. Investment decisions are guided by approved broad investment strategies and the guidance provided by Investment Strategy Committee. The Chief Executive Officer and Executive Director Investments have the final decision on transactions of the funds while specific trades may require the Board Investment Strategy Committee (BISC) approval. Following execution, mandates are subsequently reviewed for consistency or probable adjustments.
FUM of N4.7 trillion ($10.6 billion at N444/$) as of September 2022 (December 2021: N4.4 trillion; December 2020: N3.9 trillion) was driven by steady monthly RSA contributions and new businesses. We expect the upward trajectory to continue over the rating horizon.
Risk management, controls and systems: Stanbic IBTC Pensions’ risk management framework is adequate for its operations as a PFA. The organisational structure allows management to be closely involved in all key transactions and risk is managed at senior management and board levels, with Stanbic IBTC Pensions benefiting from Stanbic IBTC Holdings’ risk control framework. The Manager’s risk exposures are viewed in three ways: 1) own-investment portfolio, 2) business and competition and 3) operations (cyber and data privacy breach risks). Adequate resources are deployed to identifying, measuring, analysing, and monitoring market, credit and liquidity risks in managing its own funds. In addition, Stanbic IBTC Pensions defends its market share by offering other value-added services and leveraging its strong brand, among others. Cyber and data privacy risks are managed using internal controls that are reviewed annually by independent third parties and there has not been any reported breach of the Manager’s infrastructure. In terms of systems, various back and front office tools are deployed in the settlement and reporting of transactions, which we consider adequate.
The stable outlook is premised on our expectations that Stanbic IBTC Pensions will continue to ride on its strong brand to maintain its leading market position despite developments in the regulatory policy environment. Stable earnings from a growing FUM are expected to culminate in stronger capitalisation. Over the next 12-18 months, the operating environment – including weak macroeconomic fundamentals and regulatory directives, are likely to impact the trend of the pension industry’s returns. However, we do not envisage a material impact on the Manger’s performance.
An upgrade could be triggered by a moderation of key counterparty risks on the back of a less constraining operating environment. A negative rating action may arise from loss of market position and underperformance of investments. An improvement/deterioration of management practice and benchmarks may improve/lower the rating.
Stanbic IBTC Pension Managers Limited
Management Quality Rating
Salient Points of Accorded Rating
GCR affirms that a.) no part of the rating process was influenced by any other business activities of the credit rating agency; b.) the ratings were based solely on the merits of the rated entity, security or financial instrument being rated; and c.) such ratings were an independent evaluation of the risks and merits of the rated entity, security or financial instrument.
The management quality rating has been disclosed to Stanbic IBTC Pension Managers Limited. The rating above was solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the rating.
Stanbic IBTC Pension Managers Limited participated in the rating process via video conference management meetings, and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.
The information received from Stanbic IBTC Pension Managers Limited and other reliable third parties to accord the management quality rating included:
- The audited financial results to 31 December 2021;
- The audited financial results to 30 June 2022;
- A breakdown of the investment portfolio as of 30 September 2022;
- Other related information.