(The following statement was released by the rating agency)
Fitch Ratings-London-October 29: Fitch Ratings has affirmed Access Bank Plc's
(Access) Long-Term Issuer Default Rating (IDR) at 'B' with a Stable Outlook. The
Viability Rating (VR) is also affirmed at 'b'. A full list of rating actions is
at the end of this rating action commentary.
KEY RATING DRIVERS
IDRS, VR, 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, which has a
high influence on the rating. Nigeria's sovereign rating is 'B+' with Stable
Outlook.
The acquisition of Diamond Bank (Diamond) on 31 March 2019 increased Access'
consolidated assets by around 30% and created Nigeria's largest bank, with a 23%
share of deposits (previously 11%). Following the acquisition, Access'
traditional corporate business model is more balanced across retail and SME
segments. Management's objectives are 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 currently have only a
moderate influence on the bank's ratings.
Diamond's asset quality was weak but management is successfully executing on a
plan to write off impaired loans and focus on recoveries. The impaired (Stage 3)
loans/gross loans ratio, which had exceeded 10% immediately following Diamond's
acquisition, fell back to 6.8% at end-June 2019. This is broadly in line with
ratios displayed by the most highly rated Nigerian banks (around 7%) but Access'
share of Stage 2 loans as a proportion of gross loans is still fairly high at
around 20%. Total loan loss coverage of Stage 3 loans is high at 112% (49%
immediately post-acquisition), but specific coverage of Stage 2 loans is still
Access' risk culture is strong. The bank's risk management tools, culture and
controls are being implemented across the Diamond network, which we view
positively but it will take time to assess whether asset quality problems at
Diamond have been fully addressed.
Access' Fitch Core Capital (FCC)/risk-weighted assets ratio, 18% at end-June
2019, is still below the 28% average reported by its closest peers. Access'
ability to generate earnings is considerable and regulatory capital ratios have
been strengthened through subordinated debt issuance, but this is not included
in our calculation of FCC.
Performance metrics achieved so far in 2019 are sound. Net interest margin
improved to 7.3% in 1H19, largely as a result of lower funding costs reflecting
the inflow of cheaper retail and SME deposits, which are proving to be stable.
The bank's cost-to-income ratio (65%) is still high compared with the 50%
average reported by more efficient peers, but identified synergy savings are
considerable and efficiency improvements should feed through over the next few
years.
Access' funding profile improved following the Diamond merger and the outlook
for the bank's funding and liquidity metrics is positive. Liquidity coverage for
short-term liabilities in foreign currency and naira is prudent. Diamond's
USD200 million bond was repaid at end-May 2019 and Access redeemed USD400
million of subordinated notes in June 2019. Repayment of Access' outstanding
USD300 million Eurobond is not due until October 2021 and the bank's
foreign-currency liquidity position is comfortable, with US dollar cash and
equivalents covering around 40% of foreign-currency deposits at end-June 2019.
Access' National Ratings reflect the bank's creditworthiness relative to other
issuers in Nigeria.
SUBORDINATED DEBT
Access' NGN30 billion subordinated bonds are rated one notch below the bank's
National Long-Term Rating. This reflects higher loss-severity relative to senior
unsecured instruments, reflecting their subordinated status. No additional
notching is ascribed for non-performance risk as we regard this to be minimal
relative to that captured by Access' National Long-Term Rating.
SUPPORT RATING AND SUPPORT RATING FLOOR
Fitch believes that sovereign support to Nigerian banks cannot be relied on
given Nigeria's weak ability to provide support, particularly in foreign
currency. The Support Rating Floor of all Nigerian banks is 'No Floor' and all
Support Ratings are '5'. This reflects our view that senior creditors cannot
rely on receiving full and timely extraordinary support from the Nigerian
sovereign if any of the banks become non-viable.
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.
Upside for the VR is sensitive to asset quality trends. Should Access' Stage
3/gross loans ratio stabilise or improve, and should the Stage 2/gross loans
ratio become more in line with ratios displayed by more highly rated peers, an
upgrade of the VR is possible. The VR could also be upgraded if the benefits of
the Diamond merger feed through to sustainable sound profitability trends,
boosting internal capital generation. Downside to the VR is not envisaged at
present but a material deterioration in the operating environment would likely
negatively impact the VR.
SENIOR AND SUBORDINATED DEBT
A change in Access' IDRs would lead to a change in the ratings of the bank's
senior debt obligations. The subordinated bond's rating is sensitive to changes
in Access' National Long-Term Rating.
ENVIRONMENT, SOCIAL AND GOVERNANCE SCORES
The highest level of environmental, social and governance (ESG) credit relevance
for Access is a score of 3. This means ESG issues are credit-neutral or have
only a minimal impact on the entity, either due to their nature or to the way in
which they are being managed by the entity.
The rating actions are as follows:
Access Bank Plc
Long-Term IDR affirmed at 'B'; Outlook Stable
Short-Term IDR affirmed at 'B'
Viability Rating affirmed at 'b'
Support Rating affirmed at '5'
Support Rating Floor affirmed at 'No Floor'
National Long-Term Rating affirmed at 'A+(nga)'
National Short-Term Rating affirmed at 'F1(nga)'
Senior unsecured long-term rating affirmed at 'B'/'RR4'
Senior unsecured short-term rating affirmed at 'B'
Subordinated National long-term rating affirmed at 'A(nga)'
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
Mark Young
Managing Director
+44 203 530 1318
Media Relations: Louisa Williams, London, Tel: +44 20 3530 2452, Email:
louisa.williams@thefitchgroup.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
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/site/dodd-frank-disclosure/10099665
Solicitation Status
https://www.fitchratings.com/site/pr/10099665#solicitation
Endorsement Policy
https://www.fitchratings.com/regulatory
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