(The following statement was released by the rating agency)
Fitch Ratings-London-June 06: Fitch Ratings has affirmed Access Bank Plc's
(Access) Long-Term Issuer Default Rating (IDR) at 'B' and Viability Rating (VR)
at 'b'. The Rating Watch Negative (RWN) on the bank's ratings and debt
obligations has been removed and a Stable Outlook is assigned to the Long-Term
IDR.
Fitch has also assigned an expected National Long-Term Rating of 'A(nga)(EXP)'
to Access' forthcoming local currency subordinated medium-term bond issue. The
assignment of final rating is contingent on the receipt of final documents
conforming to information already reviewed.
A full list of rating actions is at the end of this rating action commentary.
Resolution of the RWN followed a review of Access' financial profile. This
highlighted deterioration in asset quality and capitalisation metrics, both
impacted by the acquisition of Diamond Bank Plc (Diamond) completed on 31 March
2019. Nevertheless, the deterioration has not been sufficiently material to
affect the credit profile, which is still commensurate with Access' rating.
The Stable Outlook reflects our view that rating upside and downside is
balanced. Over time, we will look for evidence as to whether targets outlined in
the bank's strategic plan, which envisages considerable growth and strengthened
financial metrics, are achieved.
KEY RATING DRIVERS
IDRS, VIABILITY RATING, NATIONAL RATINGS AND SENIOR DEBT RATINGS
The IDRs, National Ratings and senior debt ratings of Access are driven by its
intrinsic creditworthiness, as defined by its VR. Like all Nigerian banks,
Access' VR is constrained by the operating environment in Nigeria. Nigeria's
sovereign rating is 'B+'/Stable.
The acquisition of Diamond resulted in an increase in Access' consolidated
assets of around 30% and created Nigeria's largest bank, with a 23% share of
deposits (previously 11%). The bank's franchise is now stronger and Access'
traditional corporate business model is more balanced across retail and SME
segments, areas of expertise at Diamond.
Management's ability to complete the transaction in a short period of time
demonstrates strong execution skills. The objective is to pursue a
retail-focused, digitally-driven, growth strategy and position the bank as a
regional leader in Africa. If achieved, this will boost Access' profile, but
factors such as franchise, business model and strategic objectives have only a
moderate influence on the bank's ratings. Financial profile metrics,
particularly in areas such as asset quality and capitalisation, have a higher
influence on the bank's ratings and we will be monitoring trends in impaired
loan write-offs, recoveries and internal capital generation.
We assess Access' risk culture as strong compared with domestic peers' and this
framework has proved to be robust over different economic cycles. Access' risk
management tools, culture and controls are being implemented across the Diamond
network, which we view positively.
Consolidation of Diamond drove up the stock of impaired loans to NGN297 billion
(end-2018: NGN55 billion), equivalent to 10.4% of total loans at end-March 2019,
with only moderate coverage of about 49% by specific loan loss allowance.
Impaired loans are highly concentrated, with the top 20 impaired loans
representing around 80% of the total stock. Management is confident that a
number of large impaired loans will be written off in the short- to medium-term
and envisages a reduction in the impaired loans/gross loans ratio to low single
digits by end-2020.
Good progress in achieving write-offs, loan repayment and recoveries has already
been made, suggesting that asset quality targets may be achieved. Currently,
Access' impaired loans/gross loans ratio is above the 8% average reported by
more highly rated Nigerian banks, namely Zenith Bank, Guaranty Trust Bank and
United Bank for Africa.
Capitalisation was negatively impacted by the Diamond acquisition, which
generated NGN22.7 billion of goodwill. Access' Fitch Core Capital (FCC)/risk
weighed assets ratio fell to 16% at end-March 2019 (end-2018: 18.4%), well below
the 26% average for the abovementioned more highly rated Nigerian banks. Net
impaired loans/FCC ratio increased to 28% at end-1Q19 from a negative value at
end-2018, albeit we view this level as manageable given Access' capacity to
fully provide for existing impaired loans from annual pre-impairment profits.
Access' ability to generate earnings is considerable and management plans to
boost core capitalisation through retention of earnings. Regulatory capital
ratios are being strengthened through subordinated debt issuance but this is not
included in our calculation of FCC.
Access' loans/deposits ratio improved considerably following the acquisition of
Diamond and the deposit mix is more balanced towards low-cost retail and SME
deposits, which are proving to be highly stable. Access' higher cost funding
base was a rating weakness and the ability to improve the overall funding
profile is credit-positive. Diamond's USD200 million bond was repaid at end-May
2019 and sufficient foreign currency (FC) liquidity has been earmarked to ensure
repayment of additional FC borrowing maturing in 2H19.
Access' National Ratings reflect the bank's creditworthiness relative to other
issuers in Nigeria.
SUBORDINATED DEBT
We have assigned an expected 'A(nga)(EXP)' National long-term rating to the
bank's forthcoming local currency subordinated bond issue, which is targeted to
raise NGN30 billion. The seven-year bonds will be marketed in Nigeria and will
rank pari passu with other subordinated obligations of the bank. The expected
rating is notched down once from the bank's 'A+(nga)' National Long-Term rating,
in line with our criteria. The notching reflects incremental loss severity of
the forthcoming subordinated bonds.
The existing foreign currency subordinated debt issued by Access is rated one
notch below its VR to reflect higher loss severity relative to senior debt.
Recoveries on the notes in the event of default are considered to be below
average, as evidenced by the 'RR5' Recovery Rating. No notching for
non-performance risk relative to the VR is applied as any loss absorption would
only occur once the bank reaches the point of non-viability.
SUPPORT RATING AND SUPPORT RATING FLOOR
The Support Rating and Support Rating Floor are unaffected by today's rating
action.
RATING SENSITIVITIES
IDRS, VR, NATIONAL RATINGS
Access' IDRs are sensitive to a change in the bank's VR. National Ratings are
sensitive to changes in Access' credit risk relative to other Nigerian issuers
which, in turn, could also be sensitive to a change in the bank's VR.
Downside risk to the VR in the foreseeable future is possible if management's
expectations for asset quality and capitalisation trends are not achieved. The
VR could be upgraded in the medium term if Access' financial profile becomes
sustainably comparable with higher-rated peers'.
SENIOR AND SUBORDINATED DEBT
A change in Access' IDRs would lead to a change in the ratings of the bank's
senior debt obligations. A change in Access' VR would lead to a change in the
rating of the bank's subordinated debt.
ENVIRONMENT, SOCIAL AND GOVERNANCE SCORES
We had expected Access' strategy to have been disrupted during the acquisition
process. This was not the case and the score assigned to Access' exposure to
governance issues was changed to '3' from '4' to reflect this. Following this,
environmental, social or governance assessments are not rating drivers for
Access.
The rating actions are as follows:
Access Bank Plc
Long-Term IDR affirmed at 'B'; RWN removed; Outlook Stable
Short-Term IDR affirmed at 'B'
Viability Rating affirmed at 'b'; RWN removed
Support Rating '5'; unaffected
Support Rating Floor 'No Floor'; unaffected
National Long-Term Rating affirmed at 'A+(nga)'; RWN removed
National Short-Term Rating affirmed at 'F1(nga)'; RWN removed
Senior unsecured long-term rating affirmed at 'B'/'RR4'; RWN removed
Senior unsecured short-term rating affirmed at 'B'
Subordinated long-term rating affirmed at 'B-'/'RR5'; RWN removed
Forthcoming subordinated medium-term seven year bonds: assigned 'A(nga)(EXP)'
Contact:
Primary Analyst
Janine Dow
Senior Director
+44 203 530 1464
Fitch Ratings Limited
30 North Colonnade
London E14 5GN
Secondary Analyst
Tim Slater
Analyst
+44 203 530 1791
Committee Chairperson
Olga Ignatieva
Senior Director
+7 495 956 6906
Media Relations: Louisa Williams, London, Tel: +44 20 3530 2452, Email:
louisa.williams@fitchratings.com.
Additional information is available on www.fitchratings.com
Applicable Criteria
Bank Rating Criteria (pub. 12 Oct 2018)
https://www.fitchratings.com/site/re/10044408
National Scale Ratings Criteria (pub. 18 Jul 2018)
https://www.fitchratings.com/site/re/10038626
Short-Term Ratings Criteria (pub. 02 May 2019)
https://www.fitchratings.com/site/re/10073011
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Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/site/dodd-frank-disclosure/10077829
Solicitation Status
https://www.fitchratings.com/site/pr/10077829#solicitation
Endorsement Policy
https://www.fitchratings.com/regulatory
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