(The following statement was released by the rating agency)
Fitch Ratings-London-May 07:
Fitch Ratings has maintained Access Bank Plc's 'A+(nga)' National Long-Term
Rating and 'F1(nga) National Short-Term Rating on Rating Watch Negative (RWN)
The rating actions follow a review of Access's creditworthiness relative to
other Nigerian issuers. Fitch has recalibrated the Nigerian National Ratings
scale following the sovereign downgrade on 6 April.
Resolution of the RWN will depend on the fallout from the oil price crash and
the impact of the coronavirus pandemic on the bank's credit profile. Fitch will
focus on the bank's asset quality and capital metrics as these have been
pressured by the acquisition of troubled Diamond Bank in April 2019.
Access reported an impaired (Stage 3)/gross loans ratio of 5.9% and loan loss
allowances/impaired loan ratio of 108% at end-1Q20. While the impaired loan
ratio is in line with peers, its Stage 2 loans/gross loans ratio remains high at
28.0% at end-1Q20 (end-2019: 30.7%).
The majority of Stage 2 loans were inherited from Diamond and these may not
migrate to Stage 3 due to pre-emptive and regular restructuring which commenced
in 2019. As we understand, 67% of the Stage 2 book is in naira, protecting
Access from asset quality and devaluation risks to some extent. Furthermore,
Access made some progress in the first three months of the year in reducing
Stage 2 oil and gas loans to 13.8% of the total at end-1Q20 (end-2019: 16.5%).
Of the stage 2 loans, the oil and gas related loans are the ones we view as
potentially risky given the current low oil prices.
Access's Tier 1 and total capital ratios rose to 17.3% and 20.9% at end-1Q20.
Access plans to enhance regulatory capital ratios in 2020 through higher
retained earnings, thanks to its solid revenue generating capacity that has been
boosted by the acquisition, notwithstanding the pandemic. Access will remain
profitable in 2020 due to strong margins (including further improvement in its
cost of funding), robust non-interest income and lower operating expenses
post-merger.
Key Rating Drivers
Access's National Ratings reflect its creditworthiness relative to other issuers
in Nigeria and are driven by its standalone strength. They are lower than the
highest -rated Nigerian peers due to its comparatively weaker profitability and
capitalisation metrics.
Access' National Short-Term Rating is the lower of the two options for a
'A+(nga)' National Long-Term Rating possible under Fitch's criteria, reflecting
potential risks to funding and liquidity from market instability.
Access' naira-denominated subordinated debt rating is 'A-(nga)', in line with
the two-notch base case in our criteria.
The RWN on the bank's National Ratings and debt rating reflects our expectation
that like its Nigerian peers, Access will face material pressures from a weaker
operating environment over the next few months given the oil price crash,
potential further devaluation of the Nigerian naira and the impact of the
coronavirus pandemic on individuals and businesses. It also reflects the bank's
comparatively weaker capital ratios than direct peers.
RATING SENSITIVITIES
Access's National Ratings are sensitive to a change in its creditworthiness
relative to other Nigerian issuers.
Factors that could, individually or collectively, lead to positive rating
action/upgrade:
Access's National Ratings could be downgraded if its regulatory tier 1 and total
capital ratios do not catch up with peers during 2020. A substantial weakening
in asset quality metrics compared with peers could also trigger a downgrade.
Similar to peers, downside risk will also arise from a weakening in the bank's
standalone credit profile. Nigerian banks face very challenging conditions due
to pressures in the domestic operating environment. Downside risks are
heightened by the coronavirus outbreak especially if the current lockdown, oil
price weakness and global economic turmoil extend into 2H20, giving rise to a
more severe economic and financial market fallout than currently expected.
Factors that could, individually or collectively, lead to negative rating
action/downgrade:
Upside to the ratings is unlikely at present but could come from a sustained
improvement in financial metrics from Access's larger franchise and more-diverse
business model.
In accordance with Fitch's policies, the issuer appealed and provided additional
information to Fitch that resulted in a rating action that is different than the
original rating committee outcome
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions issuers have a
best-case rating upgrade scenario (defined as the 99th percentile of rating
transitions, measured in a positive direction) of three notches over a
three-year rating horizon; and a worst-case rating downgrade scenario (defined
as the 99th percentile of rating transitions, measured in a negative direction)
of four notches over three years. The complete span of best- and worst-case
scenario credit ratings for all rating categories ranges from 'AAA' to 'D'.
Best- and worst-case scenario credit ratings are based on historical
performance. For more information about the methodology used to determine
sector-specific best- and worst-case scenario credit ratings, visit
https://www.fitchratings.com/site/re/10111579.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the
Applicable Criteria.
Access Bank Plc; National Long Term Rating; Rating Watch Maintained; A+(nga);
RW: Neg
; National Short Term Rating; Rating Watch Maintained; F1(nga); RW: Neg
----subordinated; National Long Term Rating; Rating Watch Maintained; A-(nga);
RW: Neg
Contacts:
Primary Rating Analyst
Janine Dow,
Senior Director
+44 20 3530 1464
Fitch Ratings Ltd
30 North Colonnade, Canary Wharf
London E14 5GN
Secondary Rating Analyst
Christopher Ogunleye,
Analyst
+44 20 3530 1192
Committee Chairperson
Lindsey Liddell,
Senior Director
+44 20 3530 1008
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. 28 Feb 2020) (including rating assumption
sensitivity)
https://www.fitchratings.com/site/re/10110041
National Scale Ratings Criteria (pub. 18 Jul 2018)
https://www.fitchratings.com/site/re/10038626
Additional Disclosures
Solicitation Status
https://www.fitchratings.com/site/pr/10121214#solicitation
Endorsement Status
https://www.fitchratings.com/site/pr/10121214#endorsement_status
Endorsement Policy
https://www.fitchratings.com/regulatory
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